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Offshoring and Inflation

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  • Comin, Diego
  • Johnson, Robert

Abstract

Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration was inflationary. This result continues to hold when we extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, we demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation.

Suggested Citation

  • Comin, Diego & Johnson, Robert, 2020. "Offshoring and Inflation," CEPR Discussion Papers 15387, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15387
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    References listed on IDEAS

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    1. Alessandria, George & Choi, Horag, 2021. "The dynamics of the U.S. trade balance and real exchange rate: The J curve and trade costs?," Journal of International Economics, Elsevier, vol. 132(C).
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    4. Auer, Raphael A. & Degen, Kathrin & Fischer, Andreas M., 2013. "Low-wage import competition, inflationary pressure, and industry dynamics in Europe," European Economic Review, Elsevier, vol. 59(C), pages 141-166.
    5. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
    6. Xavier Jaravel & Erick Sager, 2018. "What are the Price Effects of Trade? Evidence from the U.S. and Implications for Quantitative Trade Models," Economic Working Papers 506, Bureau of Labor Statistics.
    7. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ulate,Mauricio & Vasquez,Jose P. & Zarate Vasquez,Roman David, 2023. "Labor Market Effects of Global Supply Chain Disruptions," Policy Research Working Paper Series 10434, The World Bank.
    2. Peña, Jennifer & Prades, Elvira, 2024. "International sourcing during COVID-19: How did Chilean firms fare?," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 5(1).

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    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F1 - International Economics - - Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F6 - International Economics - - Economic Impacts of Globalization

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