Has the rise in globalization reduced U.S. inflation in the 1990s?

Authors: E. Gamber¹; J. Hung²

Source: Economic Inquiry, Volume 39, Number 1, 1 January 2001 , pp. 58-73(16)

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Abstract:

This article investigates whether increased globalization of the U.S. economy has helped hold down inflation in the 1990s. Based on several measures, we find that globalization has increased. Further, we find that import prices exert a greater impact on prices of products in industries faced with greater import penetration. High foreign excess capacity accounts for much of the recent decline in U.S. inflation. Our results suggest that the decline in inflation is explained by the interaction of increased globalization and high excess foreign capacity. Globalization by itself does not lead to less inflation, just greater sensitivity to foreign economic conditions.

Document Type: Original article

Affiliations: 1: Department of Economics and Business, Lafayette College, Easton, PA 18042, USA 2: Macroeconomic Analysis Division, Congressional Budget Office, 2nd and D Streets, SW, Washington, DC 20515, USA

Publication date: 2001-01-01

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Economic Inquiry is a well-respected, general economics journal. Publishing four issues per year, its papers are of high quality and endeavour to make each article easily accessible to economists who are not necessarily specialists in the article's topic area. Authors are mostly from the US, primarily from the Western regions of the States, but papers are regularly published by authors from outside the US.