Working Paper: NBER ID: w13948
Authors: Frederic S. Mishkin
Abstract: The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (1) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (2) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (3) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (4) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes.
Keywords: No keywords provided
JEL Codes: E52; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Globalization (F60) | Sensitivity of inflation to domestic output gaps (E31) |
| Better monetary policy (E52) | Sensitivity of inflation to domestic output gaps (E31) |
| Foreign output gaps (F41) | Domestic inflation (E31) |
| Domestic monetary policy (E52) | Domestic interest rates (E43) |
| Globalization (F60) | Monetary transmission mechanism (E52) |
| Exchange rate channel (F31) | Monetary transmission mechanism (E52) |