Research on Globalisation and Monetary Policy

Dallas Fed has a Globalization and Monetary Policy Institute which does research on the same. It recently released its firts annual report which summarised the agenda, research done so far etc etc.

It has an interesting short note within the report – First Steps: Developing a Research Agenda on Globalization and Monetary Policy. It has lots of insights on globalisation and its impact on monetary policy.

First, it looks at how globalised US economy is in both real and financial terms. In real terms, US appears to be quite closed when we look at imports as a % of GDP. However, when we measure real globalisation by comparing domestic prices with international prices, there is no real conclusion.  While Measuring financial globalisation, US seems to have become more globalised overtime.  However, in both we need better ways to measure globalisation. It also raises an important issue:

How do we combine a measure of financial globalization with a measure of real globalization to arrive at a single index? Indeed, how do we incorporate information on the extent to which the U.S. labor market is open into our measure of globalization? The United States has long been a destination of choice for international migrants. Over the past decade, net international migration into the U.S. has amounted to more than 1 million people a year. Some 12.5 percent of the current U.S. population is estimated to have been born overseas. The ability of the U.S. to draw on a large stock of foreign workers has been a significant source of strength for the U.S. economy over the years, and the cyclical response of migration to economic conditions in the U.S. helps alleviate labor market pressures.

They then look at the question which has been a rage with monetary policy- whether globalisation has impacted inflation (read my criticism of the issue here). It also points that research has indicated more globalised economies tend to have lower inflation over a longer time.

In all it suggests despite these issues, more research is needed to understand how globalisation (both real and financial) has impacted mon policy and economies.

This essay has reviewed some of the themes emerging from the research being conducted at the institute. We are developing many more themes, which will be highlighted in future institute annual reports. We have not addressed issues concerning financial globalization in any great depth, yet it is clear that the growth of international capital markets is a crucial element of globalization and has very direct implications for monetary policy, as recent events have shown.[10] Nor have we addressed the issue of international pricing, which is at the core of many debates in contemporary international macroeconomics. We expect to make significant contributions to this issue in the years ahead.

In short, while economists already have many tools available for understanding globalization and what it might mean for monetary policy, there are numerous open questions, and these questions will form the institute’s research agenda over the years to come.

A nice review on globalisation literature.

One Response to “Research on Globalisation and Monetary Policy”

  1. Research on Measuring Financial Integration and whether SWFs help? « Mostly Economics Says:

    […] on Measuring Financial Integration and whether SWFs help? By Amol Agrawal I had recently posted on the need to have better measures to find out how much an economy is financially integrated with […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: