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Globalization and Inflation: A Swiss Perspective
SSRN Electronic Journal, 2000
Globalization has given rise to new concerns that domestic inflation is caused by global developments, especially in the state of the global gap in GDP and resource utilization, and whether domestic monetary policy can control it. This paper explores the role of globalization, if any, for inflation, particularly in Switzerland, one of the smallest and most open economies where the globalization hypothesis should be most relevant, but where inflation historically has been among the lowest in the world. Is Switzerland and Swiss monetary policy unique in providing a benchmark for price stability, or is Swiss inflation performance an accident, with Swiss inflation being dictated by global experience or at least by its larger neighbors? It provides tests of whether inflation in Switzerland is causally related to inflation elsewhere. It focuses in more detail on Swiss inflation in a P* model and on whether it is also influenced by inflation in Germany, other countries or by inflation abroad via an import channel. Finally, the paper looks more broadly at other evidence of whether Swiss inflation or that in other industrial countries is influenced by globalization. Swiss inflation is largely made at home. There is evidence presented of a cointegrating relationship of Swiss and German inflation, but this and the high correlation of Swiss and German inflation are more likely due to common inflation objectives.
Globalization, Inflation and Monetary Policy
Monetary Policy & the Economy, 2006
Following up on Glatzer, Gnan and Valderrama (2006), we investigate two further channels through which globalization may have dampened inflation in the euro area: first, changed incentives for policymakers; second, global demand and supply conditions. Our empirical evidence shows that the domestic output gap seems to have lost its influence on inflation in the euro area; however, we cannot confirm that euro area inflation is instead significantly influenced by the global output gap. Therefore and because of daunting measurement problems, we caution against attaching undue weight to global output gap developments in central banks’ reaction functions. The flattening of the euro area Phillips curve – together with weakened monetary policy control over inflation due to increasing global long-term interest links and heightened uncertainty for policymakers due to globalization – calls for the stabilization of inflation expectations as a primary goal for monetary policy. Central banks shou...
Do Wages Lead Inflation? Swiss Evidence
Swiss Journal of Economics and Statistics
am grateful to two anonymous referees for their stimulating suggestions. Earlier drafts of this paper took advantage of the helpful remarks of several collegues at the SNB as well as of participants in the 2006 Annual Meeting of the SSES. I also thank André Farine at the SFSO for his support in gathering the data as well as Cliona Coyne and Helen Baumer for their careful reading of the manuscript. The views expressed in this paper are those of the author and do not necessarily reflect those of the Swiss National Bank.
Some Simple Tests of the Globalization and Inflation Hypothesis*
International Finance, 2010
This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Toward that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for that hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. Second, we find no evidence that the trend decline in the sensitivity of inflation to the domestic output gap observed in many countries owes to globalization. Finally, and most surprisingly, our econometric results indicate no increase over time in the responsiveness of inflation to import prices for most countries. However, even though we find no evidence that globalization is affecting the parameters of the inflation process, globalization may be helping to stabilize real GDP and hence inflation. Over time, the volatility of real GDP growth has declined by more than the volatility of domestic demand, suggesting that net exports increasingly are acting to buffer output from fluctuations in domestic demand.
Money and inflation in Switzerland
Swiss Journal of Economics and Statistics, 2022
This paper characterizes the relationship between monetary aggregates, inflation and economic activity in Switzerland since the mid-1970s. Traditional forms of money demand and quantity theory relationships have remained stable over the whole period. Broad money excesses over trend values, accounting for a secular decline in interest rates and thus in trend velocity, have been followed by persistently higher inflation and output with the usual monetary policy transmission lags. Money and exchange rate fluctuations can explain the major inflation developments in Switzerland over the past four decades.
Globalization and Inflation, 2023
The Turkish economy, particularly during and after the 1990s, has faced with greater levels of inflation, which began to decline following the 2001 banking crisis due to major shift in policymaking within Turkey's political and economic framework. When the global economy is considered, however, substantial globalization has transpired, resulting in a worldwide disinflation trend. Therefore, the question of "How did the global disinflationary period affect the overall performance of Turkey's price stability policy?" has gained prominence as a pertinent one. The primary objective of this article is to examine the impact of globalization on inflation in Turkey within this paradigm. In addition to analyzing volatile patterns in Turkish inflation from 2003 to 2020, the relevance of domestic and international factors will be empirically investigated through structural VAR analysis. Our findings reveal that, domestic prices are explicitly correlated with the globalization through global demand circumstances, imported input costs and foreign currency shifts all of which contribute significantly to price fluxes. Nevertheless, it is imperative to stress that inflation inertia is a crucial aspect of measuring inflation.
Some Preliminary Evidence on the Globalization-Inflation Nexus
SSRN Electronic Journal, 2000
This paper aims at evaluating the impact of globalization, if any, on inflation and the inflation process. We estimate standard Phillips curve equations on a panel of OECD countries over the last 25 years. We first show that the impact of commodity import price inflation on CPI inflation depends on the volume of commodity imports while the impact of non-commodity import price inflation is independent of the volume of non-commodity imports. Second, focusing on the role of intra-industry trade, we provide preliminary evidence that this variable can account (i) for the low pass-through of import price to consumer price and (ii) for the flattening of the Phillips curve, i.e. the lower sensitivity of inflation to the output gap.
Inflation and unemployment in Switzerland: from 1970 to 2050
Quantitative Finance Papers, 2011
An empirical model is presented linking inflation and unemployment rate to the change in the level of labour force in Switzerland. The involved variables are found to be cointegrated and we estimate lagged linear deterministic relationships using the method of cumulative curves, a simplified version of the 1D Boundary Elements Method. The model yields very accurate predictions of the inflation rate on a three year horizon. The results are coherent with the models estimated previously for the US, Japan, France and other developed countries and provide additional validation of our quantitative framework based solely on labour force. Finally, given the importance of inflation forecasts for the Swiss monetary policy, we present a prediction extended into 2050 based on official projections of the labour force level.
Inflation Globalization and the Fall of Country Specific Fluctuations
2006
Inflation in the most industrialized economies of the world has an important international common component that accounts for the historical decline in the national rates. Country specific conditions explain the rise in inflation volatility of the late 1970s and early 1980s, and the subsequent fall. During the last decade, the world contribution to the variance of inflation has become increasingly more important than national contributions. Monetary policy was a relevant source of country specific fluctuations. Our conclusions are based on a time-varying dynamic factor model applied to a large panel of inflation indicators.
Review of Economics, 2016
Globalization influences inflation and the transmission channels of monetary policy in various ways. The effects of globalization on the ability of monetary policy to control inflation have been discussed intensively. However, in the light of recent experiences following the global financial crisis with extended periods of disinflation in many advanced economies, the question whether the ability of monetary policy to control inflation has suffered significantly from increasing globalization has received new relevance. Based on a review of the literature, this paper discusses whether globalization is reducing the ability of central banks to control inflation and draws conclusion for the current situation in the euro area. We find that globalization has made it more complicated for central banks to ensure price stability and that it has tended to reduce the ability of monetary policy to control inflation in the short- to medium-run. However, in principle the ECB is still able to contr...