Globalization, Macroeconomic Performance, and Monetary Policy

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 g...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2009-02, Vol.41 (s1), p.187-196
Main Author: MISHKIN, FREDERIC S.
Format: Article
Language:English
Subjects:
aggregate output
Discussions
E52
Economic globalization
Economic impact
Economic impact analysis
Economic inflation
Economic policy
Economic stabilization
Economic theory
Economics
F41
Forecasts and trends
Globalization
Import prices
Inflation
Inflation (Economics)
Inflation (Finance)
Inflation rate
Inflation rates
Inflation theory
Interest rates
International economics
International monetary economics
Market trend/market analysis
Monetary policy
Monetary policy transmission mechanisms
monetary transmission mechanism
Studies
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Summary: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: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) 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. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) 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.
ISSN:0022-2879
1538-4616
DOI:10.1111/j.1538-4616.2008.00204.x