Offshoring and Inflation / Diego A. Comin, Robert C. Johnson.

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Comin, Diego A

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w27957.Publication details: Cambridge, Mass. National Bureau of Economic Research 2020.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Did trade integration suppress inflation in the United States? Conventional wisdom says "yes," based on the disinflationary supply-side impacts of trade. We argue that these supply-side arguments are incomplete, because trade integration also influences aggregate demand. Our analysis leverages two facts: trade integration was a long-lasting, phased-in shock, and offshoring accounts for a large share of it. Given these facts, we show trade integration is inflationary in conventional New Keynesian models. This result continues to hold when we account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration.

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Working Paper	Biblioteca Digital	Colección NBER	nber w27957 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w27954 Economic Adjustment during the Great Recession: The Role of Managerial Quality /	nber w27955 Misallocation and Capital Market Integration: Evidence From India /	nber w27956 (S)Cars and the Great Recession /	nber w27957 Offshoring and Inflation /	nber w27958 Bottom-up Markup Fluctuations /	nber w27959 Liquidity and Volatility /	nber w2796 The Effectiveness of Foreign-Exchange Intervention: Recent Experience /	Next

October 2020.

Did trade integration suppress inflation in the United States? Conventional wisdom says "yes," based on the disinflationary supply-side impacts of trade. We argue that these supply-side arguments are incomplete, because trade integration also influences aggregate demand. Our analysis leverages two facts: trade integration was a long-lasting, phased-in shock, and offshoring accounts for a large share of it. Given these facts, we show trade integration is inflationary in conventional New Keynesian models. This result continues to hold when we account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration.