Inflation-output tradeoff as equilibrium outcome of globalization

Alon Binyamini*, Assaf Razin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


The paper provides an integrated analysis of globalization effects on the inflation-output tradeoff and monetary policy in the New-Keynesian framework. The prediction of the analysis is threefold. First, labor, goods, and capital mobility flatten the Phillips curve, the tradeoff between inflation and activity. Second, the same globalization forces lead the welfare-based monetary policy to be more aggressive with regard to inflation fluctuations, and at the same time, more benign with respect to the output-gap fluctuations. Third, the equilibrium response of inflation to supply and demand shocks is more moderate, and the response of the output gap to these shocks is more pronounced - when the economy opens up - under such welfare-based monetary policy.

Original languageEnglish
Pages (from-to)109-134
Number of pages26
JournalIsrael Economic Review
Issue number1
StatePublished - 2008


  • Interest-rate policy rule
  • Migration
  • New-Keynesian Phillips curve
  • Trade in financial assets
  • Trade in goods


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