Was Globalization the Root Cause of Low Inflation?

Juhana Hukkinen and Matti Viren
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Juhana Hukkinen: Monetary Policy and Research Department of Bank of Finland, Helsinki
Matti Viren: Monetary Policy and Research Department of Bank of Finland, Helsinki and Economics Department of University of Turku

Economia Internazionale / International Economics, 2024, vol. 77, issue 3, 337-370

Abstract: This paper examines the reasons for the declining path of inflation since the 1970s. In particular, it focusses on the role of globalization – covering both changes in the global market structure and technical and structural developments in trade and production. In addition, the paper deals with changes in the basic transmission mechanisms of price and wage inflation. The paper makes use of different data from individual countries and panel of countries. These data show that the dispersion of inflation and the behavior of relative prices follow a pattern that is consistent with several globalization indicators. Also estimation results show that these indicators are useful in tracing the developments of trend inflation after the 1960s. Moreover, it is shown that the basic relationships between prices and costs are nonlinear depending on the level of inflation. La globalizzazione è stata l’origine della bassa inflazione? Questo articolo esamina le ragioni della riduzione dell’inflazione a partire dagli anni ’70. In particolare, viene messo al centro il ruolo della globalizzazione – considerando sia i cambiamenti nel mercato globale che gli sviluppi tecnici e strutturali nel commercio e nella produzione. Inoltre, l’articolo tratta i cambiamenti nei meccanismi alla base della trasmissione dell’inflazione dai prezzi ai salari. Nell’articolo si utilizzano dati relativi a singoli paesi e a panel di paesi. Questi dati mostrano che la dispersione dell’inflazione e il comportamento dei prezzi relativi seguono un modello coerente con differenti indicatori di globalizzazione. Inoltre, le stime mostrano che questi indicatori sono utili per spiegare l’andamento dell’inflazione dopo gli anni ’60. Infine, si riscontra che le relazioni di base tra prezzi e costi non sono lineari e dipendenti dal livello dell’inflazione.

Keywords: Inflation; Globalization; Phillips Curve; Trade Unions (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F02 F41 F42 F62 (search for similar items in EconPapers)
Date: 2024
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