TY  - JOUR
AU  - Sbordone, Argia M
TI  - Globalization and Inflation Dynamics: the Impact of Increased Competition
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13556
PY  - 2007
Y2  - October 2007
DO  - 10.3386/w13556
UR  - http://www.nber.org/papers/w13556
L1  - http://www.nber.org/papers/w13556.pdf
N1  - Author contact info:
Argia Sbordone
Macroeconomic & Monetary Studies
Federal Reserve Bank of New York
33 Liberty Street
New York, NY  10045-0001
E-Mail: argia.sbordone@ny.frb.org
M1  - published as Argia M. Sbordone. "Globalization and Inflation Dynamics: The Impact of Increased Competition," in Jordi Galí and Mark J. Gertler, editors, "International Dimensions of Monetary Policy " University of Chicago Press (2009)

M3  - presented at "International Dimensions of Monetary Policy Conf.", June 11-13, 2007
AB  - This paper analyzes the potential effect of global market competition on inflation dynamics. It does so through the lens of the Calvo model of staggered price-setting, which implies that inflation depends on expected future inflation and a measure of marginal costs. I modify the assumption of a constant elasticity of demand, standard in this model, to provide a channel through which an increase in the number of traded goods may affect the degree of strategic complementarity in price setting, and hence alter the dynamic response of inflation to marginal costs. I first discuss the behavior of the variables that drive the impact of trade openness on this response, and then I evaluate whether an increase in the variety of traded goods of the size observed in the US in the `90s might have a sizable quantitative impact. I find that it is difficult to argue that such an increase in trade should have generated an increase in US market competition leading to a decline in the slope of the inflation-marginal cost relation.
ER  -