Inflation, Market Structure and Globalization. A Sectoral Study for Mexico
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Abstract
This article discusses the importance of market structure as a determinant of inflation. The research analyzes part of those called „necessary structural reforms” announced in recent years in Mexico. Taking into account the long tradition in openness generated in recent decades, I capture the sectoral level differences between openness and competition by considering 15 of 23 manufacturing sectors into the OECD industrial classification over the period 1990-2009. Estimations using panel data models shows that openness has a positive effect on inflation, this is, firms that import the most tend to increase the costs on their final products. However, inflation decreases when market competition increase.
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References
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Ball, Lawrence M. 2006. „Has Globalization Changed Inflation?”, The National Bureau of Economic Research, Working Paper 12687.
Barro, R.,, and Gordon, D. 1983. „A Positive Theory of Monetary Policy in a Natural Rate Model.” Journal of Political Economy, 91(4): 589-610.
Binici, M., Cheung, Y., and Lai, K. 2012. „Trade Openness, Market Competition, and Inflation: Some Sectoral Evidence from OECD Countries.” Central of the Republic of Turkey, Working Paper 12/06.
Borio, C., and Filardo, A. 2007. „Globalization and Inflation: New cross-Country Evidence on the Global Determinants of Domestic Inflation.” Bank for International Settlements, Working Papers227.
Boulhol, H. 2008. „The Convergence of Price–cost Margins.” Open Economies Review, 19(2): 221-240.
Brumm, H.J. 2000. „Inflation and Central Bank Independence: Conventional Wisdom Redux.” Journal of Money, Credit, and Banking, 32(4): 807-819.
Campa, J., and Goldberg, L. 1995. „Investment in manufacturing, exchange rates and external exposure,” Journal of International Economics, 38(3): 297-320
Campillo, M., and Miron, J. 1997. „Why Does Inflation Differ Across Countries?”. In Reducing Inflation: Motivation and Strategy, ed. Christina, Romer and David Romer. 335-357. Chicago: University of Chicago Press.
Cavelaars, P. 2003. „Does Competition Enhancement Have Permanent Inflation Effects?” Kyklos, 56(1): 69-94.
Clifton, E., Leon, H., and Wong, C. 2001. „Inflation Targeting and the Unemployment-inflation Trade off.” International Monetary Fund, Working Paper WP/01/166.
Cox, Michael W. 2007. „Globalization, Aggregate Productivity, and Inflation.” Federal Reserve Bank of Dallas, Staff Papers, No. 1.
Cukierman, A., ed. 1992. Central Bank Strategy, Credibility and Independence: Theory and Evidence, Cambridge. MA: MIT Press.
Domowitz, I., Hubbard, G., and Petersen, B. 1986. „Business Cycles and the Relationship Between Concentration and Price-cost Margins.” Rand Journal of Economics, 17(1): 1-17.
Esquivel, G., and Razo, R. 2003. „Fuentes de la Inflación en México, 1989-2000: Un Análisis Multicausal de Corrección de Errores.” Estudios Económicos, 18(2): 181-226.
Fuhrer, J.C. 1997. „Central Bank Independence and Inflation Targeting: Monetary Policy Paradigms for the Next Millennium?” New England Economic Review, 19-36.
Garcés, D.G. 1999. „Determinación del nivel de precios y la dinámica inflacionaria en México.” Banco de México, Working Papers, 1999-07.
Helbling, T., Jaumotte, F., and Sommer, M. 2006. „How has Globalization Affected Inflation?” World Economic Outlook, IMF, 97-134.
Khan, M., and Senhadji, A. 2001. „Threshold Effects in the Relationship Between Inflation and Growth.” IMF Staff Papers, 48(1): 1-21.
Kydland, F., and Prescott, E. 1977. „Rules Rather than Discretion: The Inconsistency of Optimal Plans.” Journal of Political Economy, 85(3): 473-492.
Loungani, P., and Razin, A. 2005. „Globalization and Disinflation: The Efficiency Channel.” CEPR Discussion Papers, 4895.
Neiss, K.S. 2001. „The Markup and Inflation: Evidence in OECD Countries.” Canadian Journal of Economics, 34(2): 570-587.
Pain, N., Koske, I., and Sollie, M. 2006. „Globalization and Inflation in the OECD Economies.” OECD Economics Department, Working Papers 524.
Papi, L. 2005. „Central Bank Autonomy without Monetary Policy.” Transition Studies Review, 12(1): 3-18.
Prince, Y., and Thurik, R. 1992. „Price-Cost Margins in Dutch Manufacturing - Effects of Concentration, Business Cycle and International Trade.” De Economist, 140(3): 310-335.
Rogoff, K.S. 1985. „The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics, 100(4): 1169-1189.
Rogoff, K.S. 2003. „Globalization and Global Disinflation.” Economic Review; Federal Reserve Bank of Kansas City, 4: 45-78.
Sachsida, A., Galrão, F., and Loureiro, P. 2003. „Does Greater Trade Openness Reduce Inflation? Further Evidence Using Panel Data Techniques.” Economics Letters, 81(3): 315-319.
Sarel, M. 1996. „Nonlinear Effects of Inflation on Economic Growth.” IMF Staff Papers, 43(1): 199-215.
Sbordone, A.M. 2008. „Globalization and Inflation Dynamics: The Impact of Increased Competition.” Federal Reserve Bank of New York, Staff Reports 324.
Sheridan, N. 2001. Inflation Dynamics, Johns Hopkins University: PhD. Dissertation.
Svensson, L.E. 1997. „Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets.” European Economic Review, 41(6): 1111-1146.
Turrent y Días, Euduardo. 2007. „Las Tres Etapas de la Autonomía del Banco de Central en México.” Banco de México, Working Papers 2007-10.
Ball, Lawrence M. 2006. „Has Globalization Changed Inflation?”, The National Bureau of Economic Research, Working Paper 12687.
Barro, R.,, and Gordon, D. 1983. „A Positive Theory of Monetary Policy in a Natural Rate Model.” Journal of Political Economy, 91(4): 589-610.
Binici, M., Cheung, Y., and Lai, K. 2012. „Trade Openness, Market Competition, and Inflation: Some Sectoral Evidence from OECD Countries.” Central of the Republic of Turkey, Working Paper 12/06.
Borio, C., and Filardo, A. 2007. „Globalization and Inflation: New cross-Country Evidence on the Global Determinants of Domestic Inflation.” Bank for International Settlements, Working Papers227.
Boulhol, H. 2008. „The Convergence of Price–cost Margins.” Open Economies Review, 19(2): 221-240.
Brumm, H.J. 2000. „Inflation and Central Bank Independence: Conventional Wisdom Redux.” Journal of Money, Credit, and Banking, 32(4): 807-819.
Campa, J., and Goldberg, L. 1995. „Investment in manufacturing, exchange rates and external exposure,” Journal of International Economics, 38(3): 297-320
Campillo, M., and Miron, J. 1997. „Why Does Inflation Differ Across Countries?”. In Reducing Inflation: Motivation and Strategy, ed. Christina, Romer and David Romer. 335-357. Chicago: University of Chicago Press.
Cavelaars, P. 2003. „Does Competition Enhancement Have Permanent Inflation Effects?” Kyklos, 56(1): 69-94.
Clifton, E., Leon, H., and Wong, C. 2001. „Inflation Targeting and the Unemployment-inflation Trade off.” International Monetary Fund, Working Paper WP/01/166.
Cox, Michael W. 2007. „Globalization, Aggregate Productivity, and Inflation.” Federal Reserve Bank of Dallas, Staff Papers, No. 1.
Cukierman, A., ed. 1992. Central Bank Strategy, Credibility and Independence: Theory and Evidence, Cambridge. MA: MIT Press.
Domowitz, I., Hubbard, G., and Petersen, B. 1986. „Business Cycles and the Relationship Between Concentration and Price-cost Margins.” Rand Journal of Economics, 17(1): 1-17.
Esquivel, G., and Razo, R. 2003. „Fuentes de la Inflación en México, 1989-2000: Un Análisis Multicausal de Corrección de Errores.” Estudios Económicos, 18(2): 181-226.
Fuhrer, J.C. 1997. „Central Bank Independence and Inflation Targeting: Monetary Policy Paradigms for the Next Millennium?” New England Economic Review, 19-36.
Garcés, D.G. 1999. „Determinación del nivel de precios y la dinámica inflacionaria en México.” Banco de México, Working Papers, 1999-07.
Helbling, T., Jaumotte, F., and Sommer, M. 2006. „How has Globalization Affected Inflation?” World Economic Outlook, IMF, 97-134.
Khan, M., and Senhadji, A. 2001. „Threshold Effects in the Relationship Between Inflation and Growth.” IMF Staff Papers, 48(1): 1-21.
Kydland, F., and Prescott, E. 1977. „Rules Rather than Discretion: The Inconsistency of Optimal Plans.” Journal of Political Economy, 85(3): 473-492.
Loungani, P., and Razin, A. 2005. „Globalization and Disinflation: The Efficiency Channel.” CEPR Discussion Papers, 4895.
Neiss, K.S. 2001. „The Markup and Inflation: Evidence in OECD Countries.” Canadian Journal of Economics, 34(2): 570-587.
Pain, N., Koske, I., and Sollie, M. 2006. „Globalization and Inflation in the OECD Economies.” OECD Economics Department, Working Papers 524.
Papi, L. 2005. „Central Bank Autonomy without Monetary Policy.” Transition Studies Review, 12(1): 3-18.
Prince, Y., and Thurik, R. 1992. „Price-Cost Margins in Dutch Manufacturing - Effects of Concentration, Business Cycle and International Trade.” De Economist, 140(3): 310-335.
Rogoff, K.S. 1985. „The Optimal Degree of Commitment to an Intermediate Monetary Target.” Quarterly Journal of Economics, 100(4): 1169-1189.
Rogoff, K.S. 2003. „Globalization and Global Disinflation.” Economic Review; Federal Reserve Bank of Kansas City, 4: 45-78.
Sachsida, A., Galrão, F., and Loureiro, P. 2003. „Does Greater Trade Openness Reduce Inflation? Further Evidence Using Panel Data Techniques.” Economics Letters, 81(3): 315-319.
Sarel, M. 1996. „Nonlinear Effects of Inflation on Economic Growth.” IMF Staff Papers, 43(1): 199-215.
Sbordone, A.M. 2008. „Globalization and Inflation Dynamics: The Impact of Increased Competition.” Federal Reserve Bank of New York, Staff Reports 324.
Sheridan, N. 2001. Inflation Dynamics, Johns Hopkins University: PhD. Dissertation.
Svensson, L.E. 1997. „Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets.” European Economic Review, 41(6): 1111-1146.
Turrent y Días, Euduardo. 2007. „Las Tres Etapas de la Autonomía del Banco de Central en México.” Banco de México, Working Papers 2007-10.