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Globalisation Articles

2008 Q3

Globalisation, import prices and inflation: how reliable are the 'tailwinds'? (425k)
(by Alex Bowen and Karen Mayhew of the Bank's Monetary Analysis Division). It is sometimes argued that increasing globalisation and openness to trade has exerted downward pressure on inflation in developed countries by, for example, reducing import prices. But, as recent experience of rising commodity prices suggests, globalisation may sometimes be associated with rising import prices. And, even when import prices were falling, the consequences for inflation depended on whether the changes in real incomes brought about were anticipated by households and how monetary policy reacted. Studies that neglect expectations and the role of monetary policy in determining inflation are likely to mismeasure the impact of globalisation on domestic inflation.

How has globalisation affected inflation dynamics in the United Kingdom? (438k)
(by Jennifer Greenslade and Stephen Millard of the Bank’s Structural Economic Analysis Division and Chris Peacock of the Bank’s International Finance Division). This article discusses how globalisation may influence the way inflation moves over the business cycle in the United Kingdom. Globalisation may do this by affecting how costs respond to changes in economic activity in the United Kingdom or by affecting how inflation responds to changes in costs. Some evidence is presented that suggests globalisation may have led to an increase in the importance of import prices relative to domestic economic activity in explaining changes in firms' costs. But, once this has been taken into account, the response of inflation to movements in costs does not appear to have changed over recent years. This suggests it is increasingly important to understand what drives movements in import prices, particularly given the rapid rise in global food and energy prices over the past year.

The economics of global output gap measures (492k)
(by Misa Tanaka and Chris Young of the Bank’s International Economic Analysis Division). The United Kingdom is a relatively small, open economy. The Monetary Policy Committee monitors global influences on UK costs and prices as part of its assessment of the outlook for CPI inflation. One suggested measure of these global influences is the global output gap, defined as the deviation of world demand from world potential supply. This article considers the relevance of such a measure in assessing global influences on UK costs and prices. It argues that there are a number of conceptual problems and measurement issues relating to the global output gap.
2008 Q1 The impact of low-cost economies on UK import prices (471k)
(by Conall Mac Coille of the Bank's Structural Economic Analysis Division). The share of UK imports from developing countries has increased sharply in recent years. Using measures of bilateral trade prices, this article suggests that increased sourcing from low-cost economies has put significant downward pressure on the relative price of UK goods imports. However, this effect may have dissipated over time as the prices of UK imports from low-cost economies have risen more rapidly than in the past and developing economies' increasing demand for raw materials has contributed to higher oil and commodities prices.
2007 Q2 Financial globalisation, external balance sheets and economic adjustment (728k)
(by Chris Kubelec of the Bank's International Finance Division and Bjorn-Erik Orskaug and Misa Tanaka of the Bank's International Economic Analysis Division). This article investigates the implications of the size and structure of external balance sheets for the impact of shocks on domestic economies. Increased integration of international financial markets in recent years, coupled with larger international cross-holdings of assets and liabilities, has made the balance sheet channel of transmission of shocks grow in importance. This article constructs detailed decompositions of the balance sheets of the United Kingdom, the United States and Canada. These are used to illustrate what different features of balance sheets imply about the effects on domestic economies from different shocks. Finally, the impact on UK and US external balance sheets from some hypothetical scenarios is examined, and some simple rules of thumb are used to draw out the potential implications for consumption behaviour.
2007 Q1 The macroeconomic impact of globalisation: theory and evidence (606k)
(by Morten Spange of the Bank's Monetary Assessment and Strategy Division and Chris Young of the Bank's International Economic Analysis Division). The integration into the world economy of labour-abundant economies - such as China, India and Eastern European countries - has had far-reaching effects. This is of interest to policymakers, who need to understand the channels by which globalisation is affecting the macroeconomy. This article uses an economic framework to analyse globalisation. It outlines the impact predicted by an economic model on key macroeconomic variables such as interest rates, wages and relative prices. The article then compares these predictions with the evidence, and finds that although many macroeconomic variables have responded as projected, some - in particular real interest rates and current accounts - have not.

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