Inflation-output Tradeoffs as Equilibrium Outcome of Globalization
Inflation-output Tradeoffs as Equilibrium Outcome of Globalization

Author: Alon Binyamini

Publisher:

Published: 2008

Total Pages: 33

ISBN-13:

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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.

Globalization and Inflation-output Tradeoffs
Globalization and Inflation-output Tradeoffs

Author: Assaf Razin

Publisher:

Published: 2005

Total Pages: 46

ISBN-13:

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"We demonstrate how capital account and trade account liberalizations help reduce inefficiencies associated with the fluctuations in the output gap, relative to the inefficiencies associated with the fluctuations in inflation. With capital account liberalization the representative household is able to smooth fluctuations in consumption, and thus becomes relatively insensitive to fluctuations in the output gap. With trade liberalization the economy tends to specialize in production but not in consumption. The correlation between fluctuations in the output gap and aggregate consumption is therefore weakened by trade openness; hence a smaller weight on the output gap in the utility-based loss function, compared to the closed economy situations. A key implication of the theory is that globalization forces could induce monetary authorities, to put a greater emphasis on reducing the inflation rate than on narrowing the output gaps. We provide a re- interpretation of the evidence on the effect of openness on the sacrifice ratio which supports the prediction of the theory"--National Bureau of Economic Research web site.

Flattened Inflation-output Tradeoff and Enhanced Anti-inflation Policy
Flattened Inflation-output Tradeoff and Enhanced Anti-inflation Policy

Author: Assaf Razin

Publisher:

Published: 2007

Total Pages: 34

ISBN-13:

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The paper provides a unified analysis of globalization effects on the Phillips curve and monetary policy, in a New-Keynesian framework. The main proposition of the paper is twofold. Labor, goods, and capital mobility flatten the tradeoff between inflation and activity. If policy makers are guided by the welfare criterion of the representative household, globalization forces also lead monetary policy to be more aggressive with regard to inflation fluctuations but, at the same time, more benign with respect to the output-gap fluctuations.

Some International Evidence on Output-inflation Tradeoffs
Some International Evidence on Output-inflation Tradeoffs

Author: Robert E. Lucas (Jr.)

Publisher:

Published: 2011

Total Pages: 9

ISBN-13:

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"This article introduces a tight but stylized model in which market participants must make decisions without knowing whether local changes in price signal changes in relative price or merely reflect changes in the general price level; they do, however, know the statistical properties of both processes. From this basis emerges a naturalrate model in which the ratio of real-output change to price-level change in response to exogenous shifts in aggregate expenditure depends on the relative variance of those processes. Time-series cross-section data for a number of countries provide some weak evidence consistent with the basic conclusion. The underlying assumption has gone out of favor, but the modeling technique has been very influential."--Abstract.