Journal Article

Globalization, Macroeconomic Performance, and Monetary Policy

MISHKIN, FREDERIC S.

2009

Overview

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes.

• Publisher: Blackwell Publishing Inc,Wiley Subscription Services,John Wiley & Sons, Inc,Ohio State University Press
• Subject: aggregate output / Discussions / E52 / Economic factors / Economic globalization / Economic growth / Economic impact / Economic impact analysis / Economic inflation / Economic policy / Economic stabilization / Economic theory / Economics / F41 / Forecasts and trends / Globalization / Import prices / Inflation / Inflation (Economics) / Inflation (Finance) / Inflation rate / Inflation rates / Inflation theory / Interest rates / International economics / International monetary economics / Macroeconomics / Market trend/market analysis / Monetary policy / Monetary policy transmission mechanisms / monetary transmission mechanism / Studies