March 2010 issue contents
Has Globalization Changed the Phillips Curve? Firm-Level Evidence on the Effect of Activity on Prices

by Eugenio Gaiotti
Economic Outlook and Monetary Policy Department, Bank of Italy


The flattening of the Phillips curve observed in the industrial countries has been attributed to globalization, in contrast with the traditional explanation centered on monetary policy credibility. The empirical literature is not conclusive. This paper argues that recourse to micro data is needed to identify whether changes in the slope of the Phillips curve are structural. Taking advantage of a unique data set including about 2,000 Italian firms, the paper tests whether a change in the link between capacity utilization and prices is confirmed at the company level and whether it is concentrated among those firms that are more exposed to foreign competition. The answer is either inconclusive or negative in all cases. The results do not lend support to the view that the flattening of the Phillips curve is due to globalization.

JEL Codes: E31, E52, E58.

Full article (PDF, 34 pages 566 kb)

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