Working Paper Series no. 195: Some Preliminary Evidence on the Globalization-Inflation Nexus

Abstract

This paper aims at evaluating the impact of globalization, if any, on inflation and the inflation process. We estimate standard Phillips curve equations on a panel of OECD countries over the last 25 years. We first show that the impact of commodity import price inflation on CPI inflation depends on the volume of commodity imports while the impact of non-commodity import price inflation is independent of the volume of non-commodity imports. Second, focusing on the role of intra-industry trade, we provide preliminary evidence that this variable can account (i) for the low pass-through of import price to consumer price and (ii) for the flattening of the Phillips curve, i.e. the lower sensitivity of inflation to the output gap.

Sophie Guilloux and Enisse Kharroubi
January 2008

Classification JEL : C22, E31, F41.

Keywords : Inflation, Globalization, Phillips curve, Intra-industry trade, Contestability, Import prices.