Openness and inflation

Erasmus Kersting () and Mark Wynne

Staff Papers, 2007, issue Apr

Abstract: This paper reviews the evidence on the relationship between openness and inflation. There is a robust negative relationship across countries, first documented by Romer (1993), between a country's openness to trade and its long-run inflation rate. However, a key part of the standard explanation for this relationship?that central banks have a smaller incentive to engineer surprise inflations in more-open economies because the Phillips curve is steeper?seems at odds with the facts. While the United States is still not a very open economy by conventional measures, there are channels through which global developments may influence the nation's inflation. We document evidence that global resource utilization may play a role in U.S. inflation and suggest avenues for future research.

Keywords: Phillips curve; Trade; Inflation (Finance) (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (49)

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