Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-11T04:54:16.324Z Has data issue: false hasContentIssue false
  • English
  • Français

HAS GLOBALIZATION TRANSFORMED U.S. MACROECONOMIC DYNAMICS?

Published online by Cambridge University Press:  13 March 2012

Fabio Milani
Fabio Milani*
Affiliation:
University of California, Irvine
*
Address correspondence to: Department of Economics, 3151 Social Science Plaza, University of California, Irvine, CA 92697-5100, USA; e-mail: fmilani@uci.edu; URL: http://www.socsci.uci.edu/~fmilani.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper estimates a structural New Keynesian model to test whether globalization has changed the behavior of U.S. macroeconomic variables. Several key coefficients in the model–such as the slopes of the Phillips and IS curves, the sensitivities of domestic inflation and output to “global” output, and so forth–are allowed in the estimation to depend on the extent of globalization (modeled as the changing degree of openness to trade of the economy), and, therefore, they become time-varying. The empirical results indicate that globalization can explain only a small part of the reduction in the slope of the Phillips curve. The sensitivity of U.S. inflation to global measures of output may have increased over the sample, but it remains very small. The changes in the IS curve caused by globalization are similarly modest. Globalization does not seem to have led to an attenuation in the effects of monetary policy shocks. The nested closed-economy specification still appears to provide a substantially better fit of U.S. data than various open-economy specifications with time-varying degrees of openness. Some time variation in the model coefficients over the postwar sample exists, particularly in the volatilities of the shocks, but it is unlikely to be related to globalization.

Keywords

Globalization and InflationGlobal SlackOpennessNew Keynesian ModelExpectations and Adaptive LearningDSGE Model with Time-Varying Coefficients
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 2 , April 2012 , pp. 204 - 229
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Ball, L. (2006) Has Globalization Changed Inflation? NBER working paper 12687.CrossRefGoogle Scholar
Bank for International Settlements [BIS] (2006) 76th Annual Report 2005/2006, Basel, Bank for International Settlements.Google Scholar
Binyamini, A. and Razin, A. (2007) Flattened Inflation–Output Tradeoff and Enhanced Anti-inflation Policy: Outcome of Globalization? NBER working paper 13280.CrossRefGoogle Scholar
Boivin, J. and Giannoni, M. (2007) Global forces and monetary policy effectiveness. In Gali, J. and Gertler, M. J. (eds.), International Dimensions of Monetary Policy. Chicago: University of Chicago Press.Google Scholar
Borio, C. and Filardo, A. (2007) Globalisation and Inflation: New Cross-Country Evidence on the Global Determinants of Domestic Inflation. Working paper 227, Bank for International Settlements.CrossRefGoogle Scholar
Castelnuovo, E. (2007) Tracking U.S. Inflation Expectations with Domestic and Global Determinants. Mimeo, University of Padua.Google Scholar
Castelnuovo, E. and Surico, P. (2010) Monetary policy, inflation expectations and the price puzzle. Economic Journal 120 (549), 1262–1283.CrossRefGoogle Scholar
Clarida, R., Galí, J., and Gertler, M. (2002) A simple framework for international monetary policy analysis. Journal of Monetary Economics 49, 879–904.CrossRefGoogle Scholar
D'Agostino, A. and Surico, P. (2009) Does Global Liquidity Help to Forecast US Inflation? Journal of Money, Credit and Banking 41, 479–489.CrossRefGoogle Scholar
Evans, G.W. and Honkapohja, S. (2001) Learning and Expectations in Economics. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Feenstra, R.C. and Hanson, G.H. (1996) Globalization, outsourcing, and wage inequality. American Economic Review 86 (2), 240–245.Google Scholar
Fisher, R. (2005) Globalization and Monetary Policy. Warren and Anita Manshel Lecture in American Foreign Policy, Harvard University, Cambridge, MA.Google Scholar
Fisher, R. (2006) Coping with Globalization's Impact on Monetary Policy. Remarks for the National Association for Business Economics Panel Discussion at the 2006 Allied Social Science Associations Meeting, Boston, MA.Google Scholar
Forbes, K.J. and Chinn, M.D. (2004) A decomposition of global linkages in financial markets over time. Review of Economics and Statistics 86 (3), 705–722.CrossRefGoogle Scholar
Frankel, J.A. and Rose, A.K. (1998) The endogeneity of the optimum currency area criteria. Economic Journal 108 (449), 1009–1025.CrossRefGoogle Scholar
Gamber, E.N. and Hung, J.H. (2001) Has the Rise in Globalization Reduced U.S. Inflation in the 1990s? Economic Inquiry 39 (1), 58–73.CrossRefGoogle Scholar
Honkapohja, S.Mitra, K., and Evans, G.W. (2011) Notes on Agents' Behavioral Rules under Adaptive Learning and Studies of Monetary Policy. CDMA Working Paper Series 1102, Centre for Dynamic Macroeconomic Analysis.Google Scholar
Ihrig, J., Kamin, S.B., Lindner, D., and Marquez, J. (2007) Some Simple Tests of the Globalization and Inflation Hypothesis. IF Discussion Paper 891, Board of Governors of the Federal Reserve System.CrossRefGoogle Scholar
Jeffreys, H. (1961) Theory of Probability. Oxford: Oxford University Press.Google Scholar
Loungani, P. and Razin, A. (2005) Globalization and Inflation–Output Tradeoffs. NBER working paper 11641.Google Scholar
Lubik, T. and Schorfheide, F. (2004) Testing for indeterminacy: An application to U.S. monetary policy. American Economic Review 94 (1), 190–217.CrossRefGoogle Scholar
McCallum, B.T. (1999) Issues in the design of monetary policy rules. In Taylor, J.B. and Woodford, M. (eds.), Handbook of Macroeconomics, 1st ed., chap. 23, pp. 1483–1530. Amsterdam: Elsevier.CrossRefGoogle Scholar
Milani, F. (2007) Expectations, learning and macroeconomic persistence. Journal of Monetary Economics 54 (7), 2065–2082.CrossRefGoogle Scholar
Milani, F. (2009a) Has global slack become more important than domestic slack in determining U.S. inflation? Economics Letters 102 (3), 147–151.CrossRefGoogle Scholar
Milani, F. (2009b) The Effect of Global Output on U.S. Inflation and Inflation Expectations: A Structural Estimation. Mimeo, University of California, Irvine.CrossRefGoogle Scholar
Milani, F. (2010) Global slack and domestic inflation rates: A structural investigation for G-7 countries. Journal of Macroeconomics 32 (4), 968–981.CrossRefGoogle Scholar
Milani, F. (2011) The impact of foreign stock markets on macroeconomic dynamics in open economies: A structural estimation. Journal of International Money and Finance 30 (1), 111–129.CrossRefGoogle Scholar
Mishkin, F. (2009) Globalization, macroeconomic performance, and monetary policy. Journal of Money, Credit, and Banking 41 (1) (supplement), 187–196.CrossRefGoogle Scholar
Preston, B. (2005) Learning about monetary policy rules when long-horizon expectations matter. International Journal of Central Banking 1 (2).Google Scholar
Rogoff, K.S. (2003) Globalization and global disinflation. In Monetary Policy and Uncertainty: Adapting to a Changing Economy. Federal Reserve Bank of Kansas City.Google Scholar
Rogoff, K.S. (2007) Impact of Globalization on Monetary Policy. In The New Economic Geography: Effects and Policy Implications. Federal Reserve Bank of Kansas City.Google Scholar
Romer, D. (1993) Openness and Inflation: Theory and Evidence. Quarterly Journal of Economics 108 (4), 869–903.CrossRefGoogle Scholar
Rotemberg, J. and Woodford, M. (1998) An optimization-based econometric framework for the evaluation of monetary policy. In NBER Macroeconomics Annual, pp. 297–346. Cambridge, MA: MIT Press.Google Scholar
Sbordone, A. (2007) Globalization and inflation dynamics: The impact of increased competition. In Gali, J. and Gertler, M.J. (eds.), International Dimensions of Monetary Policy, pp. 547–579. Chicago: University of Chicago Press.Google Scholar
Sims, C.A. and Zha, T. (2006) Were there regime switches in U.S. monetary policy? American Economic Review 96 (1), 54–81.CrossRefGoogle Scholar
Tootell, G. (1998) Globalization and U.S. inflation. New England Economic Review, 21–33.Google Scholar
Woodford, M. (2007) Globalization and monetary control. In Gali, J. and Gertler, M.J. (eds.), International Dimensions of Monetary Policy, pp. 13–77. Chicago: University of Chicago Press.Google Scholar
Wynne, M.A. and Kersting, E.K. (2007) Openness and Inflation. Staff Paper 2, Federal Reserve of Dallas.Google Scholar
Zaniboni, N. (2008) Globalization and the Phillips Curve. Mimeo, Princeton University.Google Scholar