Open Economies Review

, Volume 25, Issue 2, pp 337–371 | Cite as

The Non-Monetary Side of the Global Disinflation

  • Gregor SchwerhoffEmail author
  • Mouhamadou Sy
Research Article


The dramatic decline in inflation across the world over the last 20 years has been largely credited to improved monetary policy. The universal nature of the phenomenon, however, indicates that globalization, which occurred simultaneously, also played a role. We build a model based on Melitz (2003) in which falling transport cost lead to greater openness, higher productivity and lower inflation. Following a decline in transport cost openness increases and firm selection eliminates the least productive domestic firms. The consequent increase in average productivity leads to falling relative prices for goods. A cash-in-advance constraint allows analyzing how falling relative prices can lead to lower inflation. Using a data set of macroeconomic variables for 123 countries from all world regions, we disentangle the influences of monetary policy and globalization by showing that openness-induced productivity growth leads to a significant decline in inflation world-wide. The results can be further confirmed in a calibration exercise.


Globalization Openness Monetary policy Productivity Disinflation 

JEL Classification:

F15 F41 E31 


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Potsdam Institute for Climate Impact ResearchPotsdamGermany
  2. 2.Paris School of Economics (PSE) and Commissariat Général à la Stratégie et à la Prospective (CGSP)ParisFrance

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