EconPapers    
Economics at your fingertips  
 

Financial globalization and monetary policy discipline

Mark Spiegel

No 2008-10, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The literature appears to have reached a consensus that financial globalization has had a \"disciplining effect\" on monetary policy, as it has reduced the returns from--and hence the temptation for--using monetary policy to stabilize output. As a result, monetary policy over recent years has placed more emphasis on stabilizing inflation, resulting in reduced inflation and greater output stability. However, this consensus has not been accompanied by convincing empirical evidence that such a relationship exists. One reason is likely to be that de facto measures of financial globalization are endogenous, and that instruments for financial globalization are elusive. In this paper, I introduce a new instrument, financial remoteness, as a plausibly exogenous instrument for financial openness. I examine the relationship between financial globalization and median inflation levels over an 11 year cross-section from 1994 through 2004, as well as a panel of 5-year median inflation levels between 1980 and 2004. The results confirm a negative relationship between median inflation and financial globalization in the base specification, but this relationship is sensitive to the inclusion of conditioning variables or country fixed effects, precluding any strong inferences.

Keywords: Monetary policy; Inflation (Finance); Globalization (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2008/wp08-10bk.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2008-10

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().

 
Page updated 2025-03-31
Handle: RePEc:fip:fedfwp:2008-10