Recent empirical studies find the effect of globalization on the inflation differ in sign and size across countries. These findings call attention to control cross-country heterogeneity. In order to account for both dependency and heterogeneity across countries, this study investigates the causal linkages between globalization and inflation in 21 OECD countries by using panel causality analysis for the period 1970–2010. In this study, we find globalization has significantly changed some major industrialized countries’ inflation and the effect of globalization on the inflation exhibits a high degree of heterogeneity. Consistent with the view of negative impact of globalization on inflation, we find that the coefficient is negative and significant in most of the cases. Regarding the direction of inflation-globalization nexus, we find one-way Granger causality running from inflation to globalization for Hungary and Poland. Furthermore, we find a feedback between globalization and inflation for Italy only.
Quality & Quantity – Springer Journals
Published: May 6, 2014
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