Globalization is the most likely explanation for surprisingly low rates of inflation, suggesting that central banks should be patient in seeking to meet their targets and avoid providing too much stimulus, a senior official at the Bank for International Settlements said Friday.
The bank's advice comes as the global economy has accelerated this year, while unemployment rates continue to fall across developed economies. Despite that, inflation rates across the Group of 20 largest economies have eased and stand at levels last seen in 2009, when the world was just starting to emerge from the sharp economic downturn that followed the global financial crisis.
Central bankers are puzzled at the breakdown in the economic relationship between activity and prices.
http://www.foxbusiness.com/features/2017/09/22/bis-says-globalization-is-answer-to-inflation-puzzle.html
It seems that even with the economy being globalized, there is still a strong correlation between level of us output and inflation.
ReplyDeleteBut there is also some evidence that the output of the global economy has a pull on us inflation. But this pull is small, and we seem to manage in large our own inflation.
http://www.nber.org/digest/jun07/w12687.html
I agree, the fact that many large corporations have spread all over the world precisely because they are more attractive in terms of cheap labor and tax incentives means they can produce cheaply and sell expensively. this is likely a huge factor in the low inflation rates in these corporations home countries in the developed world.
ReplyDeleteGlobalization is a very broad and encompassing topic (hence why there is a whole politics and government class dedicated to it. I think it is a very broad statement to say that globalization is the reason for low rates of inflation. Hopefully to help straighten out the breakdown there will be studies on more specific topics of globalization.
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