Globalisation effect on inflation in the great moderation era: new evidence from G10 countries

Qin, Duo and He, Xinhua (2011): Globalisation effect on inflation in the great moderation era: new evidence from G10 countries.

Abstract

The effect of globalisation on inflation is modelled and simulated for ten countries from G10 during the Great Moderation period. The results are supportive of the globalisation hypothesis. In particular, the results show that dynamic channels and magnitudes of globalisation to domestic inflation are highly heterogeneous from country to country, that increases in trade openness could be either inflationary or deflationary, while increased imports from low-cost emerging-market economies have been mostly deflationary, and that there has been almost no direct globalisation impact as far as inflation persistence is concerned while the impact on inflation variability can be positive as well as negative. Overall, globalisation is shown to have contributed positively to the aspect of low inflation rather than that of stable inflation during the Great Moderation era.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation dynamics; globalisation
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications

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