Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?

Razin, Assaf; Binyamini, Alon

doi:10.3386/w13280

Cited by 30 publications

(26 citation statements)

References 18 publications

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“…the sensitivity of inflation to domestic economic activity or real marginal costs. The effect is a matter of dispute, as previous papers have argued that globalization may either lead to a flattening of the Phillips curve (e.g., Razin and Yuen, 2002, Razin and Loungani, 2005, and Razin and Binyamini, 2007 or to its steepening (Rogoff, 2003). Sbordone relaxes the assumption of constant elasticity of substitution among differentiated goods, by allowing it to vary with the firm's relative market share.…”

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confidence: 91%

Global slack and domestic inflation rates: A structural investigation for G-7 countries

Milani

2010

Journal of Macroeconomics

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Recent papers have argued that one implication of globalization is that domestic inflation rates may have now become more a function of "global", rather than domestic, economic conditions, as postulated by closed-economy Phillips curves. This paper aims to assess the empirical importance of global output in determining domestic inflation rates by estimating a structural model for a sample of G-7 economies. The model can capture the potential effects of global output fluctuations on both the aggregate supply and the aggregate demand relations in the economy and it is estimated using full-information Bayesian methods. The empirical results reveal a significant effect of global output on aggregate demand in most countries. Through this channel, global economic conditions can indirectly affect inflation. The results, instead, do not seem to provide evidence in favor of altering domestic Phillips curves to include global slack as an additional driving variable for inflation.JEL codes: E31, E50, E52, E58, F41

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confidence: 91%

Global slack and domestic inflation rates: A structural investigation for G-7 countries

Milani

2010

Journal of Macroeconomics

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“…Secondly, the employment patterns of immigrants and, in particular, their industry composition and geographical mobility suggest that they have different preferences regarding consumption and leisure than natives. For instance, as mentioned earlier, Razin and Binyamini (2007) show that immigration alters the elasticities of labor supply and labor demand, inducing a flatter PC. Lastly, it is likely that immigrants have a lower bargaining power than natives in noncompetitive labor markets.…”

Section: Figure 5 About Herementioning

confidence: 99%

“…On the one hand, Razin and Binyamini (2007) show that immigration and outmigration raise the elasticities of labor supply and labor demand, inducing a flatter PC. On the other hand, Engler (2007) finds a similar result via temporary outmigration of natives.…”

Section: Figure 1 About Herementioning

confidence: 99%

“…And secondly, the immigration rate has increased steadily over time, which renders its steady-state value IR a not well-defined concept. We could tackle this issue by endogeneizing IR in terms of a Harris-Todaro non-arbitrage wage condition, so that IR would be implicitly defined by the equality of expected wages of immigrants in the countries of origin and destination (see Razin and Binyamini, 2007). However, this route is not viable since at the estimation stage we would need long time series of immigrants' wages in all origin countries, which are unavailable.…”

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confidence: 99%

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Does immigration affect the Phillips curve? Some evidence for Spain

Bentolila

Dolado

Jimeno

2008

European Economic Review

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The Phillips curve has flattened in Spain over 1995-2006: unemployment has fallen by 15 percentage points, with roughly constant inflation. This change has been much more pronounced than elsewhere. We argue that this stems from the immigration boom in Spain over this period. We show that the New Keynesian Phillips curve is shifted by immigration if natives' and immigrants' labor supply elasticities and bargaining power differ. Estimation of this curve for Spain indicates that the fall in unemployment since 1995 would have led to an annual increase in inflation of 2.5 percentage points if it had not been largely offset by immigration.

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“…It could be the result of transnational wage bargaining; or the effect of locational competition and globalization on the slope and position of the Phillips curve (Demertzis and Hughes Hallett, 1998;Bean, 2006;Pain et al, 2006). Or, as Razin and Binyamini (2007) show, it could be the result of trade, increased competition and migration as product markets integrate. But equally it could be the result of reduced market frictions (Smets and Wouters, 2007); or of greater credibility and effectiveness in monetary policy (Roberts 2006, Boivin andGiannoni, 2006), especially as expectations become anchored (Williams, 2006).…”

Section: Unemployment the Natural Rate And The Phillips Curvementioning

confidence: 99%

The Impact of Tax and Market Distortions on the Phillips Curve and the Natural Rate of Unemployment

Bokan

Hallett

2008

Economics

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Abstract:Most people accept that structural and labour market reforms are needed in Europe. However few have been undertaken. The usual conjecture is that reforms are costly in economic performance and costly to finance. Blanchard and Giavazzi (2003) and Spector (2004) develop a general equilibrium model with imperfect competition to show the impact of labour or product market deregulation. We extend that model to combine these two types of reform, and then to include the effects of lowering tax distortions, the costs of financing these reforms and the conflict between long run gains and short run costs. Specifically, we use the model to explain the natural rate of unemployment and non-wage employment costs in order to show the impact of these reforms on the short and long run Phillips curve parameters. We find that structural reforms imply short run costs but long run gains; that the long run gains outweigh the short run costs; and that the financing of such reforms will be the main stumbling block. Likewise, we find an ambiguous effect on flattening the Phillips curve in the short run, but favourable effects on the natural rate in the long run. However the implications for welfare improvements and employment generation are quite distinct. Tax reforms are more effective for welfare gains, but market liberalisation is more valuable for generating employment. JEL: J58, H23, E24

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Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?

Abstract: The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

Cited by 30 publications

References 18 publications

Global slack and domestic inflation rates: A structural investigation for G-7 countries

Global slack and domestic inflation rates: A structural investigation for G-7 countries

Does immigration affect the Phillips curve? Some evidence for Spain

The Impact of Tax and Market Distortions on the Phillips Curve and the Natural Rate of Unemployment

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