Is globalization reducing the ability of central banks to control inflation?

Abstract

Since the beginning of the crisis, inflation rates have shown a clear downward trend in many advanced countries and have fallen well below the targets of their respective monetary authorities. Despite strong monetary action, inflation expectations are slow to pick up. In some countries, the recovery is quite strong and unemployment rates have decreased, yet price pressures and wage development continue to remain subdued. Do central banks seem to have (partially) lost their ability to control inflation rates? Against the backdrop of fluctuations in global commodity prices and growth, together with the ongoing structural changes related to globalization wielding pressure on prices and wages, this paper focuses on the implications of globalization for domestic inflation and its expectations and the possible consequences for national monetary policies.