Kiel Working Papers, Kiel Institute for World Economics
No 1604:
Globalization, Pass-Through and Inflation Dynamics
Pierpaolo Benigno and Ester Faia
Abstract: An important aspect of the globalization process is the
increase in interdependence among countries through the deepening of trade
linkages. This process should increase competition in each destination
market and change the pricing behavior of firms. We present an extension of
Dornbusch (1987)’s model to analyze the extent to which globalization,
interpreted as an increase in the number of foreign products in each
destination market, modifies the slope and the position of the
New-Keynesian aggregate-supply equation and, at the same time, affects the
degree of exchange-rate pass-through. We provide empirical evidence that
supports the results of our model
43 pages, March 2010
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