Working Paper: NBER ID: w14379
Authors: Alon Binyamini; Assaf Razin
Abstract: The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.
Keywords: Globalization; Inflation; Output Tradeoff; Monetary Policy; New-Keynesian Framework
JEL Codes: E3; E4; E5; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| globalization (F60) | flattening of the Phillips curve (E31) |
| flattening of the Phillips curve (E31) | inflation-output tradeoff (E31) |
| globalization (F60) | aggressive monetary policy regarding inflation fluctuations (E63) |
| globalization (F60) | benign monetary policy regarding output gap fluctuations (E63) |
| globalization (F60) | moderate equilibrium response of inflation to supply and demand shocks (E31) |
| globalization (F60) | pronounced output gap response to supply and demand shocks (E39) |