International Trade and the Connection Between Excess Demand and Inflation

This paper demonstrates that globalization, taking the form of a higher import component of consumption and a larger export component of GDP, is the cause of the apparent breakdown in the relationship between excess demand and inflation. Within a parsimonious empirical framework, we show that increasing openness of the US economy is all that is needed to re-establish the relationship between inflation and capacity utilization. We also show that international trade has a significant separate influence on inflation, and is important for identifying a Phillips curve relationship between unemployment and inflation.
author can archive pre-print (ie pre-refereeing). Publisher source must be acknowledged with citation. Must link to publisher version with set statement (see policy)
Globalization, International trade, Consumption (Economics), Demand (economic theory), Supply & Demand, Inflation (Finance)
Dexter, A.S., M. D. Levi and Nault, B.R., "International Trade and the Connection Between Excess Demand and Inflation", Review of International Economics, 13, 4 (September 2005), 699-708.