Author(s): Enrique Martínez-García
Date published: May 2019
SUERF Policy Note, Issue No 71
By Enrique Martínez-García, Federal Reserve Bank of Dallas
JEL-codes: E31, E32, F41, F44, F68.
Keywords: International business cycles, globalization, economic and trade integration, monetary policy trade-offs; macroeconomic stabilization and monetary policies.
Business cycles among major advanced economies have shifted since the 1960s – notably on macroeconomic volatility and persistence, but also in terms of duration and depth of the cycles and in terms of the predictability, synchronization, and cyclicality of output and inflation. The evidence shows empirical support for a connection between these broad shifts in business cycles and the concurrent wave of globalization largely consistent with the implications from the workhorse open-economy New Keynesian model. Through this lens, globalization should matter for monetary policymaking – not necessarily because of the ‘fear of losing control’ and being unable to achieve the central bank’s desired policy objectives, but because globalization can alter the economic environment under which policymakers operate and, in doing so, change the relevant trade-offs on macroeconomic stabilization for the central bank.
Read Full Text