Citation

Discussion Paper Details

Please find the details for DP15387 in an easy to copy and paste format below:

Full Details

Title: Offshoring and Inflation

Author(s): Diego Comin and Robert Johnson

Publication Date: October 2020

Keyword(s):

Programme Area(s): International Macroeconomics and Finance, International Trade and Regional Economics, Macroeconomics and Growth and Monetary Economics and Fluctuations

Abstract: Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration was inflationary. This result continues to hold when we extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, we demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15387

Bibliographic Reference

Comin, D and Johnson, R. 2020. 'Offshoring and Inflation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15387