DP7718 Globalization and the Output-inflation Tradeoff: New Time Series Evidence

Author(s): Sylvester C W Eijffinger, Zongxin Qian
Publication Date: February 2010
Keyword(s): openness, output-inflation tradeoff, Phillips curve, time inconsistency theory
JEL(s): E31, E58, F10, F30, F41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7718

Recent cross-country studies on the globalization and output-inflation tradeoff correlation find openness has no significant effect on OECD countries. Those studies assume parameter constancy across countries. In this paper, we argue that this assumption does not hold for major industrialized countries. Using individual time series analysis, we find the effect of openness on the output-inflation trade off differ in sign and size across countries. In contrast to previous cross-country studies, we find globalization has significantly changed some major industrialized countries? output inflation tradeoff. This has important implications for future theoretical and empirical research.