Globalization and inflation: evidence from a time varying VAR
Abstract
According to the Globalization Hypothesis, global economic slack should progressively replace the domestic output gap in driving ináation as globalization increases. We investigate the empirical evidence in favor of this prediction by using a Time-varying VAR. Two main results emerge from the analysis: First, global slack is found to a§ect the dynamics of ináation in many countries, yet its ináuence did not become stronger over time. Second, a panel analysis that exploits the cross-section characteristics of our dataset shows that globalization, measured in terms of trade and Önancial openness, is positively related to the e§ects of global slack on ináation. We conclude that integration in the global economy is in fact important, but globalization has not yet induced changes in openness large enough to justify signiÖcant brakes in ináation dynamics.
Link
http://public.econ.duke.edu/~fb36/Papers_Francesco_Bianchi/BianchiCivelli_GH.pdf