{ "title": "Globalization and Global Disinflation by Kenneth Rogoff, Economic Counselor and Director, Research Department, IMF", "publication": "IMF News, August 29, 2003", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp082903", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp082903", "overlayPath": "/en/news/articles/2015/09/28/04/53/sp082903/index.md", "summary": "Prepared for the Federal Reserve Bank of Kansas City conference on Monetary Policy and Uncertainty: Adapting to a Changing Economy, Jackson Hole, WY", "authors": [ "Kenneth Rogoff" ], "publishDate": "2003-08-29", "sections": [ { "heading": "Overview and central argument", "content": "- Over the past ten years, global inflation has dropped \"from 30% to 4%1.\" \n- Institutional improvements (central bank independence, anti-inflation-oriented appointees) matter, but Rogoff highlights increased competitiveness from globalization, deregulation, and reduced government roles as a major universal supporting factor for disinflation.\n- Increased competitiveness:\n - Lowers monopoly pricing power and \"quasi-rents.\"\n - Makes prices more flexible, reducing the real output gains from unanticipated inflation.\n - Strengthens central bank anti-inflation credibility and reduces trend inflation." }, { "heading": "Evidence on the near-universal fall in inflation", "content": "- Global and regional trends:\n - World CPI inflation (percent per annum) by periods:\n - 1980-84: World 14.1\n - 1985-89: World 15.5\n - 1990-94: World 30.4\n - 1995-99: World 8.4\n - 2000-03: World 4.1\n - 2000-04: World 3.9\n - 2003: World 3.9 (implied by table context)\n - Industrial economies: 1980-84: 8.7; 1985-89: 3.8; 1990-94: 2.0; 1995-99: 1.8; 2000-03: 1.9.\n - Developing countries: 1980-84: 31.4; 1985-89: 48.0; 1990-94: 53.2; 1995-99: 13.1; 2000-03: 5.7.\n - Latin America: 1980-84: 82.4; 1985-89: 185.9; 1990-94: 232.6; 1995-99: 17.2; 2000-03: 8.2.\n - Transition economies spike: 1990-94: 363.2; 1995-99: 53.9; 2000-03: 14.5.\n- Country-level extremes and changes:\n - In the 1970s–1990s many high/hyperinflation episodes; examples of cumulative price increases since 1970 include Argentina (100 trillion times), Brazil (a quadrillion), Democratic Republic of the Congo (almost 10 quadrillion)2.\n - Of the IMF's 184 member states, only 11 are projected to have inflation over 20% in 2003; only 6 over 30% in 2003.\n - Using a 40% threshold: Myanmar (40%), Angola (over 75%) and Zimbabwe (over 400%) reach or exceed this level in 2003.\n- Persistence and anchoring:\n - Augmented Dickey-Fuller unit root tests for 18 industrialized countries (monthly CPI 1960-2003):\n - For the full sample, cannot reject a unit root in inflation for any G-7 country.\n - Splitting sample around early 1980s: for 1981-2003 one can reject the unit root hypothesis for all G-7 countries at fairly high significance.\n - Table 3 p-values (selected):\n - United States: 1960.1-1981.12 = 0.4596; 1982.1-2003.4 = 0.0016.\n - Canada: 0.7684; 0.0167.\n - Japan: 0.0623; 0.0848.\n - France: 0.6953; 0.0033.\n - Germany: 0.3922; 0.0834.\n - Italy: 0.1756; 0.0180.\n - United Kingdom: 0.2656; 0.0176.\n - Emerging markets (Chile, Israel, South Africa) show evidence consistent with mean-reverting inflation in recent periods.\n- Deflation concerns:\n - Deflation arguably threatens more countries today than very high inflation (over 40%) once CPI upward biases are accounted for7." }, { "heading": "Factors underpinning global disinflation", "content": "- Central bank institutional change:\n - Greater central bank independence and selection of anti-inflation-focused central bankers are important contributors.\n - Central bank governor turnover used as a proxy (Table 4, fraction per five years): developing countries turnover dropped from 0.211 (1970-1989) to 0.165 (1990-2002) among other regional changes; regional values vary (table excerpted).\n - Exchange rate regime analysis (Natural Classification) shows limited flexibility and freely floating currencies have the best inflation performance, but gaps across regimes are fairly narrow except for \"freely falling.\"\n- Fiscal policy:\n - Industrial countries averaged general government primary balances of 2.8% during 1990-2002 versus -0.1% for 1970-1989 (Table 5 summary).\n - Latin America averaged primary surpluses of 1.3% in 1990s versus -0.13% earlier; Africa deficits improved from -3.4% (pre-1990) to -1.6% (1990-2003).\n - Many countries show examples where rising deficits/debt coexisted with declining inflation (India, Japan).\n - Overall: fiscal policy broadly supportive but not a universal or decisive explanation for global disinflation.\n- Productivity and technology:\n - The productivity explanation fits the U.S. late-1990s experience but fails as a universal cause (e.g., Europe saw falling inflation despite slowing productivity growth).\n - Productivity shocks tend to have temporary effects on inflation unless they affect the monopoly wedge k.\n- Globalization, deregulation, and declining monopoly power:\n - Deregulation and globalization reduced monopoly rents and markups; IMF April 2003 WEO estimates markups about 0.4 on continental Europe vs. 0.15 for U.K./U.S.\n - Emerging Asia accounts for almost 20% of world trade (China alone 5%), exerting downward pressure on goods prices and affecting intermediate goods and substitution patterns.\n - Mechanisms through which globalization/deregulation reduce inflation:\n - Reduces the wedge (k) between monopolistic and competitive equilibria, lowering gains to unanticipated inflation.\n - Makes prices more flexible (lower μ), decreasing monetary policy potency on real output and increasing credibility of low-inflation policy.\n - Openness amplifies exchange-rate-mediated costs of inflationary shocks, tempering incentives to inflate." }, { "heading": "Simple mathematical formalization (stylized political-economy model)", "content": "- Central bank objective (simple static formulation):\n - (π - πe - k - z)2 + χ(π - π)2\n - π = inflation set by central bank.\n - πe = private sector expected inflation.\n - k = wedge inversely related to monopoly power.\n - z = mean zero productivity shock.\n - π = central bank preferred inflation (example given: 2.5%).\n - χ = relative weight on inflation stabilization.\n - Equilibrium under rational expectations:\n - πe = π + k/χ\n - π = π + (k - z)/χ\n- Extension with price flexibility parameter μ:\n - Objective: [μ(π - πe) - k - z]2 + χ(π - π)2\n - Equilibrium:\n - πe = π + μ k/χ\n - π = π + μ (k - z)/χ\n - Interpretation:\n - Smaller k (due to greater competition) and smaller μ (due to greater price flexibility) lower equilibrium and expected inflation.\n - Productivity shocks (z) have temporary effects; long-run trend requires changes in k or μ.\n- Key conceptual takeaways:\n 1. Trend inflation depends on central bank incentives to inflate, not merely transitory relative price shifts.\n 2. Unexpected productivity shocks reduce inflation temporarily; deeper trend shifts arise from greater competition and price flexibility." }, { "heading": "Reduced conflict and other supportive factors", "content": "- Historical observation: war and civil conflict often drive very high inflation episodes; fewer large-economy conflicts in the 1990s likely supported disinflation.\n- Commodity price trends: global commodity prices were on a steady downward trend for much of the period since the 1990s, aiding importing countries' price reductions." }, { "heading": "Risks of a return of inflation and policy implications", "content": "- Potential triggers for renewed inflation:\n - Reversals of globalization (historical precedent in early 20th century) or sustained trade frictions (e.g., extreme security measures disrupting supply chains).\n - Reversal of deregulation leading to rising monopoly power, increased price inflexibility, and renewed incentives for monetary authorities to inflate.\n - Fiscal pressures and demographic shocks (retirement bulges) that may push governments toward surprise de-indexing or tolerating inflationary policies.\n - Weakening of central bank independence or shifts in political acceptance of low inflation as a central objective.\n- Policy implications and recommendations (implied across the analysis):\n - Preserve and strengthen central bank independence and commitment to low-inflation objectives.\n - Maintain openness, deregulation, and policies that sustain competitive markets to keep k and μ low.\n - Monitor fiscal sustainability, particularly in the face of demographic pressures, to avoid fiscal-driven inflation incentives.\n - Be vigilant about geopolitical or security developments that could materially reverse globalization and its disinflationary effects." }, { "heading": "Selected key statistics and tabulated highlights", "content": "- Global inflation averages:\n - World: 14.1 (1980-84); 15.5 (1985-89); 30.4 (1990-94); 8.4 (1995-99); 4.1 (2000-03); 3.9 (2000-04).\n - Industrial economies: 8.7 (1980-84); 3.8 (1985-89); 2.0 (1990-94); 1.8 (1995-99); 1.9 (2000-03).\n - Developing countries: 31.4 (1980-84); 48.0 (1985-89); 53.2 (1990-94); 13.1 (1995-99); 5.7 (2000-03).\n- Regional 2000-03 inflation snapshots:\n - Africa: 11.8\n - Asia (developing): 2.3\n - Latin America: 8.2\n - Middle East: 15.3\n - Transition economies: 14.5\n- Table 3 (ADF p-values for G7 split sample 1982.1-2003.4): United States 0.0016; Canada 0.0167; Japan 0.0848; France 0.0033; Germany 0.0834; Italy 0.0180; United Kingdom 0.0176.\n- Central bank governor turnover (fraction per five years, selected):\n - Developing countries: 0.211 (1970-1989) - 0.165 (1990-2002) (Table 4 noted regional variation).\n- Fiscal stance (primary balances as percent of GDP, summary):\n - Industrial countries primary balances averaged 2.8% (1990-2002) versus -0.1% (1970-1989).\n\nPrepared for the Federal Reserve Bank of Kansas City conference on \"Monetary Policy and Uncertainty: Adapting to a Changing Economy\", Jackson Hole, WY, August 29, 2003 — Kenneth Rogoff, Economic Counselor and Director, Research Department, International Monetary Fund.\n\n---\n\n Content in this bundle\n\n- 08292pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n- 0829fpdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Angola and the IMF\n- Republic of Belarus and the IMF\n- Canada and the IMF\n- United Kingdom and the IMF\n- Ireland and the IMF\n- Japan and the IMF\n- Myanmar and the IMF\n- Republic of Türkiye and the IMF\n- United States and the IMF\n- Zimbabwe and the IMF\n- Speeches\n- Kenneth S. Rogoff\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp082903" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/53/sp082903/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/53/sp082903/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/53/sp082903/bundle-manifest.json)", "Authors: Kenneth Rogoff", "Published: August 29, 2003", "Over the past ten years, global inflation has dropped \"from 30% to 4%1.\"", "Institutional improvements (central bank independence, anti-inflation-oriented appointees) matter, but Rogoff highlights increased competitiveness from globalization, deregulation, and reduced government roles as a major universal supporting factor for disinflation.", "Increased competitiveness:", "Global and regional trends:", "Country-level extremes and changes:", "Persistence and anchoring:", "Deflation concerns:", "Central bank institutional change:", "Fiscal policy:", "Productivity and technology:", "Globalization, deregulation, and declining monopoly power:", "Central bank objective (simple static formulation):", "Extension with price flexibility parameter μ:", "Key conceptual takeaways:", "Historical observation: war and civil conflict often drive very high inflation episodes; fewer large-economy conflicts in the 1990s likely supported disinflation.", "Commodity price trends: global commodity prices were on a steady downward trend for much of the period since the 1990s, aiding importing countries' price reductions.", "Potential triggers for renewed inflation:", "Policy implications and recommendations (implied across the analysis):", "Global inflation averages:", "Regional 2000-03 inflation snapshots:", "Table 3 (ADF p-values for G7 split sample 1982.1-2003.4): United States 0.0016; Canada 0.0167; Japan 0.0848; France 0.0033; Germany 0.0834; Italy 0.0180; United Kingdom 0.0176.", "Central bank governor turnover (fraction per five years, selected):", "Fiscal stance (primary balances as percent of GDP, summary):", "[08292pdf (PDF)](/-/media/websites/imf/imported/external/np/speeches/2003/_08292pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[0829fpdf (PDF)](/-/media/websites/imf/imported/external/np/speeches/2003/_0829fpdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[Angola and the IMF](http://www.imf.org/external/country/AGO/index.htm)", "[Republic of Belarus and the IMF](http://www.imf.org/external/country/BLR/index.htm)", "[Canada and the IMF](http://www.imf.org/external/country/CAN/index.htm)", "[United Kingdom and the IMF](http://www.imf.org/external/country/GBR/index.htm)", "[Ireland and the IMF](http://www.imf.org/external/country/IRL/index.htm)", "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)", "[Myanmar and the IMF](http://www.imf.org/external/country/MMR/index.htm)", "[Republic of Türkiye and the IMF](http://www.imf.org/external/country/TUR/index.htm)", "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)", "[Zimbabwe and the IMF](http://www.imf.org/external/country/ZWE/index.htm)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[Kenneth S. Rogoff](https://www.imf.org/external/np/bio/eng/kr.htm)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "related": [ { "title": "08292pdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/np/speeches/2003/_08292pdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/np/speeches/2003/_08292pdf.pdf", "mime": "application/pdf" } }, { "title": "0829fpdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/np/speeches/2003/_0829fpdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/np/speeches/2003/_0829fpdf.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/53/sp082903/index.md", "json": "/en/news/articles/2015/09/28/04/53/sp082903/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/53/sp082903/bundle-manifest.json" }, "generatedAtUtc": "2026-09-27T10:24:30.415Z" }