Policy Article

Is Globalization Reducing the Ability of Central Banks to Control Inflation?

Globalization influences inflation and the transmission channels of monetary policy in various ways. The effects of globalization on the ability of monetary policy to control inflation have been discussed intensively. However, in the light of recent experiences with extended periods of disinflation in many advanced economies, the question whether the ability of monetary policy to control inflation has suffered significantly from increasing globalization has become new relevance. This paper discusses whether globalization is reducing the ability of central banks to control inflation and draws conclusion for the current situation in the euro area.