Globalization and Inflation: A Swiss Perspective

John Tatom

No 2013-WP-02, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: Globalization has given rise to new concerns that domestic inflation is caused by global developments, especially in the state of the global gap in GDP and resource utilization, and whether domestic monetary policy can control it. This paper explores the role of globalization, if any, for inflation, particularly in Switzerland, one of the smallest and most open economies where the globalization hypothesis should be most relevant, but where inflation historically has been among the lowest in the world. Is Switzerland and Swiss monetary policy unique in providing a benchmark for price stability, or is Swiss inflation performance an accident, with Swiss inflation being dictated by global experience or at least by its larger neighbors? It provides tests of whether inflation in Switzerland is causally related to inflation elsewhere. It focuses in more detail on Swiss inflation in a P* model and on whether it is also influenced by inflation in Germany, other countries or by inflation abroad via an import channel. Finally, the paper looks more broadly at other evidence of whether Swiss inflation or that in other industrial countries is influenced by globalization. Swiss inflation is largely made at home. There is evidence presented of a cointegrating relationship of Swiss and German inflation, but this and the high correlation of Swiss and German inflation are more likely due to common inflation objectives.

Keywords: Inflation; Globalization; Switzerland; GDP gap (search for similar items in EconPapers)
JEL-codes: E31 E32 F4 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
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Related works:
Journal Article: Globalization and Inflation: a Swiss Perspective (2017)
Working Paper: Globalization and Inflation: A Swiss Perspective (2014)
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