Inflation-Output Tradeoff as Equilibrium Outcome of Globalization

Alon Binyamini and Assaf Razin

No 14379, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.

JEL-codes: E3 E4 E5 F37 F4 F41 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Note: IFM
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Citations: View citations in EconPapers (13)

Published as Alon Binyamini & Assaf Razin, 2008. "Inflation-Output Tradeoff As Equilibrium Outcome of Globalization," Israel Economic Review, Bank of Israel, vol. 6(1), pages 109-134.

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