NBER Working Papers by Alon Binyamini

The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced, when the economy opens up; under such welfare-based monetary policy.

The paper provides a unified analysis of globalization effects on the Phillips curve and monetary policy, in a New-Keynesian framework. The main proposition of the paper is twofold. Labor, goods, and capital mobility flatten the tradeoff between inflation and activity. If policy makers are guided by the welfare criterion of the representative household, globalization forces also lead monetary policy to be more aggressive with regard to inflation fluctuations but, at the same time, more benign with respect to the output-gap fluctuations.