Globalization and Inflation: The Role of China

Denise Côté () and Carlos de Resende

Staff Working Papers from Bank of Canada

Abstract: In this paper, we develop a theoretical model which identifies four channels-import prices, competition with domestic suppliers and workers, and commodity prices-through which priceand wage-setting conditions in country j may affect inflation in country i. We estimate a dynamic inflation equation derived from the theoretical model using a quarterly dataset of eighteen OECD countries over the 1984-2006 period. Although our methodology can be applied to any pair of countries, we focus on the effect of China on the inflation rate of other countries. Our results suggest that while China's negative effect on global inflation has been quantitatively modest, it has increased in absolute terms since the early 2000s. We also find evidence that, for most countries examined, competition with domestic suppliers has been the most important channel.

Keywords: International; topics (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:08-35

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