Globalization, Taylor rulesand inflation

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This article provides evidence that globalization has contributed to global disinflation by making policy makers more aggressive towards fighting inflation. We estimate Taylor rules for 83 countries over the period 1985 to 2004 and find that the relative weight attached to the output gap is negatively related to trade and financial openness in a simple cross-section model. This result does not hold up for the OECD subsample, suggesting that this group of countries has successfully solved the time inconsistency problem and uncoupled central bank behaviour from otherwise relevant determinants of the inflation bias.