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GLOBALIZATION AND INFLATION: NEW PANEL EVIDENCE

Published online by Cambridge University Press:  21 April 2015

Dong-Hyeon Kim ,
Shu-Chin Lin  and
Yi-Chen Wu
Dong-Hyeon Kim
Affiliation:
Korea University
Shu-Chin Lin*
Affiliation:
Tamkang University
Yi-Chen Wu
Affiliation:
National Central University
*
Address correspondence to: Shu-Chin Lin, Department of Economics, Tamkang University, 151 Yingzhuan Rd., Danshui Dis., New Taipei City 25137, Taiwan; e-mail address: e-mail: [email protected].
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Abstract

Recent empirical work on globalization and inflation analyzes multicountry data sets in panel and/or cross-section frameworks and reaches inconclusive results. This paper highlights their shortcomings and reexamines the issue utilizing heterogeneous panel cointegration techniques that allow for cross-section heterogeneity and dependence. It finds that in a sample of developing countries globalization of both trade and finance, on the average, exerts a significant and positive effect on inflation, whereas in a sample of developed countries there is, on the average, no significant impact of openness. Neither type of openness disciplines inflationary policy. Despite this, there are large variations in the effect across countries, due possibly to differences in the quality of political institutions, central bank independence, the exchange-rate regimes, financial development, and/or legal traditions.

Keywords

Trade OpennessFinancial OpennessInflationCross-Section DependenceHeterogeneous Panels
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 1 , January 2016 , pp. 1 - 26
Copyright
Copyright © Cambridge University Press 2015 

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