Monetary Policy Case Study

Global Inflation: Monetary Policy Debate

OR

Abstract:
Right from the last quarter of the past century, as nations opened up their economies, low-cost countries poured cheap imports and cheaper labour into the world economy. This allowed central bankers to stay with aggressive growth targets - relieving their fears of inflation. Yet the growing global economy - at around 5% from 2004 to 2006 that may remain for 2007-2010 - unleashes a resource crunch. Globalisation - that helped high growth rates, with low inflation, for about two decades - is now widely blamed for the panics about inflation. Economists feel that the monetary policies may get tighter to counter the soaring demand, which may halt economic growth.

This case study helps analyse the effects of globalisation on growth and inflation in the new economy. The case will also help in debating the role of emerging economies in fuelling (if at all) global inflation.

Pedagogical Objectives:

• To discuss the impact of globalisation on inflation
• To study the relationship between interest rates and inflation
• To realise the role of central banks in a greatly globalised world.

Keywords : Globalisation, Factors helping the process of Globalisation, Inflation, Real and Nominal Wages, Real and Nominal Interest Rates, General Price Level, Deadweight Loss, Offshoring and Outsourcing, Monetary Policy Case Study, Import Tariffs, Government’s Role in a Global Economy, Inflation and Interest Rate Dynamics