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Openness and inflation

Author

Listed:
  • Erasmus K. Kersting
  • Mark A. Wynne

Abstract

This paper reviews the evidence on the relationship between openness and inflation. There is a robust negative relationship across countries, first documented by Romer (1993), between a country's openness to trade and its long-run inflation rate. However, a key part of the standard explanation for this relationship?that central banks have a smaller incentive to engineer surprise inflations in more-open economies because the Phillips curve is steeper?seems at odds with the facts. While the United States is still not a very open economy by conventional measures, there are channels through which global developments may influence the nation's inflation. We document evidence that global resource utilization may play a role in U.S. inflation and suggest avenues for future research.

Suggested Citation

  • Erasmus K. Kersting & Mark A. Wynne, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, issue Apr.
    • Handle: RePEc:fip:feddst:y:2007:i:apr:n:2
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    References listed on IDEAS

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