Inflation in an Open World
Inflation in an Open World
Does That Change the Rules?
This chapter argues that the principles underlying the problem of inflation and how to contain it have not been superseded by globalization, and that the notion that globalization calls for a complete rethinking of the ideas presented in the previous chapters is misconceived. The chapter examines the cases that various changes in external conditions—that is, the results of globalization—call for a changed understanding of the causes and cure of inflation. Three different aspects of globalization that have been held to bring about these changes to the inflation picture are considered in turn: the expansion of international trade, the effects of increased competition and productivity, in particular as regards capacity utilization constraints, and the implications of financial openness and integration (cross-border financial flows) for domestic monetary policy.
Keywords: inflation, globalization, monetary policy, fiscal policy, international trade, competition, capacity utilization, financial integration
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