Globalisation and Inflation
Charles Bean
Published: March 2007
In this paper, Charles Bean, Executive Director, Chief Economist and member of the Monetary Policy Committee of the Bank of England, discusses the impact of globalisation on the industrialised countries and in particular the inflation process. He explains how globalisation has affected the returns to labour and capital, and the location of production in the world economy. Globalisation has also influenced relative prices, lowering the prices of imported goods but boosting the prices of oil and other commodities. And it may have changed the inflationary process, flattening the trade-off between domestic activity and inflation through a number of channels. Although globalisation has provided a benign backdrop for monetary policy, it poses a number of challenges going forward: the beneficial tailwind has waned and changes in product and labour markets have altered the determination of prices and wages in ways central bankers do not yet fully understand.
More Papers From This Author in World Economics:
Monetary Policy in an Uncertain World
In this article, Charles Bean, Bank of England Chief Economist and member of
the Monetary Policy Committee, reviews and assesses the three types of
uncertainty which affect monetary policymakers: uncertainty about the data;
uncertainty about the nature and persistence of shocks; and uncertainty about the
structure of the economy. Focusing on uncertainty about the structure of the
economy, he notes the unusual stability of inflation and output growth in the past
decade or so. There are a number of possible explanations, including plain good
luck, structural changes in the economy and improved policymaking. The author
goes on to note that the short-run trade-off between inflation and activity seems
to have flattened as inflation has stabilised at low levels and he attributes this in
part to improved monetary policymaking. He goes on to consider some of the
policy implications of this change.
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