Has the Rise in Globalization Reduced U.S. Inflation in the 1990s?

Edward N Gamber and Juann Hung

Economic Inquiry, 2001, vol. 39, issue 1, 58-73

Abstract: This article investigates whether increased globalization of the U.S. economy has helped hold down inflation in the 1990s. Based on several measures, we find that globalization has increased. Further, we find that import prices exert a greater impact on prices of products in industries faced with greater import penetration. High foreign excess capacity accounts for much of the recent decline in U.S. inflation. Our results suggest that the decline in inflation is explained by the interaction of increased globalization and high excess foreign capacity. Globalization by itself does not lead to less inflation, just greater sensitivity to foreign economic conditions. Copyright 2001 by Oxford University Press.

Date: 2001
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