The implications of globalisation for the ECB monetary policy strategy

Occasional Paper Series

Work stream on globalisation The implications of globalisation for the ECB monetary policy strategy

No 263 / September 2021

Disclaimer: This paper constitutes staff input into the Governing Council's deliberation in the context of the ECB's monetary policy strategy review. This paper should not be reported as representing the views of the Eurosystem. The views expressed are those of the authors and do not necessarily reflect those of the Eurosystem.

Acknowledgements

This report has been jointly produced by the Eurosystem work stream on globalisation from the European Central Bank (ECB) and the national central banks (NCBs) of those countries that have adopted the euro. The report fed into the Governing Council's deliberations on the monetary policy strategy review 2020-21.

We would also like to thank Philip Lane, Fabio Panetta, Isabel Schnabel, Hans-Joachim Klöckers, Frank Smets, Livio Stracca and members of the Monetary Policy and International Relations committees for their helpful comments and suggestions in earlier versions of this report and/or in the context of internal seminars. In addition, we would like to thank Massimiliano Marcelino, Andrea Carriero and Francesco Corsello for sharing their data and contributing graphical evidence to this report.

Co-leads of the work stream
David Lodge	Javier J. Pérez
European Central Bank	Banco de España
Co-ordinators of the report
Silvia Albrizio	Mary Everett
Banco de España	Central Bank of Ireland
Olivier de Bandt	Georgios Georgiadis
Banque de France	European Central Bank
Michele Ca' Zorzi	Povilas Lastauskas
European Central Bank	Lietuvos bankas
Juan Carluccio	Susana Parrága
Banque de France	Banco de España
Daniel Carvalho	Fabrizio Venditti
Banco de Portugal	Banca d'Italia
Pietro Cova
Banca d'Italia
Additional contributing authors
Maria Grazia Attinasi	Lionel Fontagné
European Central Bank	Banque de France
Mirco Balatti Mozzanica	Celestino Giron
European Central Bank	European Central Bank
Biswajit Banerjee	Vanessa Gunnella
Národná banka Slovenska	European Central Bank
Ursel Baumann	Yannick Hemmerlé
European Central Bank	De Nederlandsche Bank
Jean-Charles Bricongne	Axel Jochem
Banque de France	Deutsche Bundesbank
Francesco Chiacchio	Kristiina Karjanlahti
European Central Bank	Suomen Pankki
Nuno Coimbra	Ivan Kataryniuk
Banque de France	Banco de España
Davide Del Giudice	Iikka Korhonen
European Central Bank	Suomen Pankki - Finlands Bank
Clara De Luigi	Markus Kühnlenz
Oesterreichische Nationalbank	Deutsche Bundesbank
Dimitra Dimitropoulou	Vincent Labhard
Bank of Greece	European Central Bank
Virginia Di Nino	Helena Le Mezo
European Central Bank	European Central Bank
Ettore Dorrucci	Philipp Meinen
European Central Bank	Deutsche Bundesbank
Eric Eichler	Nilsson Mattias
European Central Bank	European Central Bank
Martin Feldkircher	Chiara Osbat
Oesterreichische Nationalbank	European Central Bank
Alberto Felettigh	Lucia Quaglietti
Banca d'Italia	European Central Bank

Thomas Reininger	Sebastian Stumpner
Oesterreichische Nationalbank	Banque de France
Julia Schmidt	Ilona Van Schaik
Banque de France	De Nederlandsche Bank
Martin Schmitz	Helmut Wacket
European Central Bank	European Central Bank
Roberta Serafini	Tina Zumer
European Central Bank	European Central Bank
Daniele Siena
Banque de France
Box contributors
Box 1	Box 6
Virginia Di Nino	Juan Carluccio
European Central Bank	Banque de France
Box 2	Sebastian Stumpner
Banque de France
Mary Everett	Box 7
Central Bank of Ireland
Alberto Felettigh	Francesco Chiacchio
Banca d'Italia	European Central Bank
Martin Schmitz	Tina Zumer
European Central Bank	European Central Bank
Box 3	Box 8
Olivier de Bandt	Clara De Luigi
Banque de France	Oesterreichische Nationalbank
Jean-Charles Bricongne	Martin Feldkircher
Banque de France	Oesterreichische Nationalbank
Lionel Fontagné	Georgios Georgiadis
Banque de France	European Central Bank
Povilas Lastauskas	Box 9
Lietuvos bankas
Box 4	Silvia Albrizio
Banco de España
Philipp Meinen	Iván Kataryniuk
Deutsche Bundesbank	Banco de España
Mattias Nilsson
European Central Bank
Roberta Serafini
European Central Bank
Box 5
Michele Ca' Zorzi
European Central Bank
Pietro Cova
Banca d'Italia
Axel Jochem
Deutsche Bundesbank

This report is part of a set of papers within the ECB's Occasional Paper Series, related to the ECB's Strategy review 2020-21. This set includes the following papers:

Set of Occasional Papers related to the ECB's Strategy review 2020-21

No 263, "The implications of globalisation for the ECB monetary policy strategy". No 264, "Inflation expectations and their role in Eurosystem forecasting".

No 265, "Inflation measurement and its assessment in the ECB's monetary policy strategy review". No 266, "Digitalisation: channels, impacts and implications for monetary policy in the euro area".

No 267, "Review of macroeconomic modelling in the Eurosystem: current practices and scope for improvement". No 268, "Key factors behind productivity trends in EU countries".

No 269, "The ECB's price stability framework: past experience, and current and future challenges".

No 270, "Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities". No 271, "Climate change and monetary policy in the euro area".

No 272, "The role of financial stability considerations in monetary policy and the interaction with macroprudential policy in the euro area".

No 273, "Monetary-fiscal policy interactions in the euro area".

No 274, "Clear, consistent and engaging: ECB monetary policy communication in a changing world". No 275, "Employment and the conduct of monetary policy in the euro area".

No 276, "The mandate of the ECB: Legal considerations in the ECB's monetary policy strategy review". No 277, "Evolution of the ECB's analytical framework".

No 278, "Assessing the efficacy, efficiency and potential side effects of the ECB's monetary policy instruments since 2014".

No 279, "The need for an inflation buffer in the ECB's price stability objective - the role of nominal rigidities and inflation differentials". No 280, "Understanding low inflation in the euro area from 2013 to 2019: cyclical and structural drivers".

Contents

Abstract	3
Executive summary	4
1	Introduction	7
2	The evolution of globalisation since the last strategy review	9

2.1 The evolution of trade globalisation since the 2003 strategy

		review	9
	Box 1 Trade globalisation in the euro area and its implications for
		shock transmission	13
	2.2	Trends in financial globalisation	14
	2.3	Summary	20
	Box 2 Globalisation-related measurement challenges in euro area
		macroeconomic statistics	21
	Box 3 Globalisation and uncertainty	22
3	The impact of globalisation on productivity growth and the natural
	interest rate	24
	3.1	Globalisation and productivity growth in advanced economies	24
	Box 4 The impact of trade integration on productivity	25
	3.2	Globalisation and the natural rate	30
	Box 5 Globalisation and inequality	32
4	How globalisation has affected inflation	36
	4.1	Stylised facts on synchronisation of inflation rates and volatility	36
	4.2	Globalisation and trend inflation	38
	Box 6 The contribution of imports from low-wage countries to euro area
		inflation	42

4.3 The relationship between inflation and the business cycle under

the impact of globalisation	45
Box 7 Trade integration and price Phillips curves	50

ECB Occasional Paper Series No 263 / September 2021

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