Nominal Stability and Financial Globalization
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Over the past four decades, there has been a substantial increase in financial globalization, that is, rapid growth in gross external portfolio positions. There has also been a substantial fall in the variability of inflation. Many economists have conjectured that financial globalization contributed to the improved inflation performance. This paper explores the causal link running in the opposite direction. Using an open economy model with endogenous portfolio choice, it is shown that a monetary rule that reduces inflation variability tends to increase the size of gross external asset positions. This result appears to be robust across different modeling specifications.
Devereux , M B , Senay , O & Sutherland , A 2014 , ' Nominal Stability and Financial Globalization ' Journal of Money, Credit and Banking , vol 46 , no. 5 , pp. 921-959 . DOI: 10.1111/jmcb.12127
Journal of Money, Credit and Banking
© 2014. The Ohio State University. This is the accepted version of the following article: Nominal Stability and Financial Globalization Devereux, M. B., Senay, O. & Sutherland, A. Aug 2014 In : Journal of Money, Credit and Banking. 46, 5, p. 921-959, which has been published in final form at http://onlinelibrary.wiley.com/doi/10.1111/jmcb.12127/abstract
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