Dallas Fed report on Globalization.  Several decades of increasing global economic integration – or globalization – have left their mark. Whether this structural shift has altered the conduct of monetary policy or its ability to promote economic stability over the business cycle has long been debated.1 Woodford (2010), among others, convincingly argued on theoretical grounds that globalization does not necessarily imply a weakening of the ability of national central banks to influence domestic output and inflation. However, the question of monetary policy effectiveness is only part of the story.

Bernanke said in 2007 that our current understanding is geared toward the view that globalization influences the conduct of monetary policy through its powerful effects on the economic and financial environment in which monetary policy must operate.  Much of the literature has in fact focused on how globalization may have changed the economic environment and, thus, altered the trade-off between output and inflation volatility for monetary policy. It is known that the business-cycle volatility of the largest economies, including the U.S., has shifted significantly during the post-World War II period. The question, then, is to what extent those changes reflect globalization?  Globalization and Monetary Policy