In this paper, Charles Bean, Executive Director, Chief Economist and member of the
Monetary Policy Committee of the Bank of England, discusses the impact of globalisation
on the industrialised countries and in particular the inflation process. He explains
how globalisation has affected the returns to labour and capital, and the location
of production in the world economy. Globalisation has also influenced relative prices,
lowering the prices of imported goods but boosting the prices of oil and other commodities.
And it may have changed the inflationary process, flattening the trade-off between
domestic activity and inflation through a number of channels. Although globalisation
has provided a benign backdrop for monetary policy, it poses a number of challenges
going forward: the beneficial tailwind has waned and changes in product and labour
markets have altered the determination of prices and wages in ways central bankers
do not yet fully understand.