Summary of The Globalisation of Inflation

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Traditional measures of inflation once largely depended on a nation’s economic conditions and the relative play among its supply, demand and output pressures. However, since the extensive proliferation of global value chains, some experts think that the international economic system can now measurably affect an economy’s domestic inflation. Economists Raphael Auer, Claudio Borio and Andrew Filardo investigate that idea in this in-depth empirical study. Their findings suggest that global production dynamics could have a significant impact on a country’s internal prices. getAbstract recommends this rigorous, scholarly report to economists, analysts and policy experts concerned about the viability of national monetary policy and control.

In this summary, you will learn

  • How a country’s integration in global value chains can affect its national inflation rates,
  • What the hypothesis of “globalization of inflation” (GI) means and
  • What aspects of GI matter to a nation’s monetary policy. 
 

About the Authors

Raphael Auer, Claudio Borio and Andrew Filardo are economists at the Bank for International Settlement.

 

Summary

Globalization has taken center stage as a defining influence in the international economy. One function of the complex web of global value chains (GVCs) is to avoid bottlenecks by moving processes among countries with “slack” – available labor and other resource capacities. Supply chains are now inextricably linked on a global scale. But one consequence of this dynamic is that global slack then affects national levels of output and prices and hence, inflation. This situation counters traditional economic thinking, in which elements that shape inflation are specific to each country’s economic conditions.

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