Openness and inflation
Abstract: This paper reviews the evidence on the relationship between openness and inflation. There is a robust negative relationship across countries, first documented by Romer (1993), between a country's openness to trade and its long-run inflation rate. However, a key part of the standard explanation for this relationship?that central banks have a smaller incentive to engineer surprise inflations in more-open economies because the Phillips curve is steeper?seems at odds with the facts. While the United States is still not a very open economy by conventional measures, there are channels through which global developments may influence the nation's inflation. We document evidence that global resource utilization may play a role in U.S. inflation and suggest avenues for future research.
File(s): File format is application/pdf http://www.dallasfed.org/assets/documents/research/staff/staff0702.pdf
Provider: Federal Reserve Bank of Dallas
Part of Series: Staff Papers
Publication Date: 2007