Abstract
During the past two decades, a growing body of research has explored the implications of increased trade and financial openness for the relationship between output and inflation. This paper reviews proposed theoretical channels through which the degree of openness might ultimately affect the output-inflation trade-off and surveys the empirical studies that have sought to determine the net effect of greater openness on this trade-off. In addition, the paper utilizes a single cross-country data set to evaluate, taking into account recent developments in the literature, the likely sign and significance of this net effect. In particular, we find current data imply that there is a negative and significant relationship between openness and the sacrifice ratio, regardless of the transmission channel that is proposed.
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Notes
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, UK, and US.
The estimate of skewness is 2.016 and kurtosis is 10.423. The within-cross-section standard deviation is 1.506 and the between-cross-section standard deviation is 1.162.
This scaling amounts to multiplying the point estimate by the standard deviation of the regressor and dividing by the standard deviation of the dependent variable.
The control variable uses the value of 1 for all observations whose absolute value of the DFITS statistics is less than or equal to 0.34. Those observations whose absolute value of the DFTIS statistic is greater than 0.34 are assigned a weight calculated as 0.34/DFITS. See, for example, Maddala (1992).
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Daniels, J.P., Mazumder, S. & VanHoose, D.D. Implications of Globalization for the Output-inflation Relationship: an Assessment. Open Econ Rev 26, 39–60 (2015). https://doi.org/10.1007/s11079-014-9317-9
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DOI: https://doi.org/10.1007/s11079-014-9317-9