Since 1995, productivity in the United States has grown substantially faster than in other advanced industrial countries.  For example, a recent study by van Ark and Inklaar (2005) indicates that while productivity in the United States accelerated after 1995, average productivity in Europe actually decelerated--indeed, they estimate that the trend in the fifteen countries that made up the European Union before 2004 has been decelerating since the mid-1980s...

Increased trade liberalization, which lowers barriers to the international flow of goods, financial capital, and direct investment, also spurs innovation and creativity....

I draw two conclusions from this work.  First, trade liberalization appears to have made it possible for multinational firms to institute highly efficient cross-border supply chains within their firms that seem to have allowed them to boost significantly the efficiency of their worldwide operations.  Second, U.S. firms, on average, have more flexible and innovative business practices, sometimes called organizational capital, that a liberalized trade regime apparently allows them to transfer to their foreign operations.

And so, one of the benefits, I think, of a more open trading system, a more open economy, where we compete with and trade with countries around the world, despite the fact that it does create stress and sometimes changes and dislocations, is that competition forces productivity gains and has been, I think, a source of growth for us as well as for our trading partners.

While we can point to types of goods for which prices are restrained by forces from abroad, the net effects of globalization on domestic inflation of all goods and services need not even be negative, especially in today’s environment of strong global growth.

In particular, the entry of China, India, and others into the global trading system probably has exerted a modest disinflationary force on prices in the United States in recent years. Moreover, we should recognize that these disinflationary effects could dissipate or even be reversed in coming years. They reflect, at least in part, the global imbalances that are the subject of this conference, rather than just the integration of emerging-market economies into the global trading system

But we are also subject to inflationary forces from abroad, including those that might accompany a shift to a more sustainable pattern of global spending and production, or those that might emanate from rising cost and price pressures.

To date, demands from these [emerging market] economies appear to have contributed to the rise in energy and other commodity prices, which is boosting overall inflation here, while their supply of low-cost exports seems to have been placing some limited downward pressure on our underlying inflation rate.  But that latter result may not persist; it stems in part from the imbalance of production over spending in some of those economies and the constraints some have placed on the appreciation of their currencies, neither of which is likely to be sustained indefinitely.

Technological progress, along with the transition to greater labor force participation in emerging and developing economies has probably served to keep inflation low in many other countries and has served to increase the rate of growth in potential output globally. But the rapid growth in the market sectors of emerging and developing economies may also contribute to more rapid growth in global demand and inflation pressures. This changing configuration of world markets complicates the task of forecasting inflation and output within national economies.

With respect to monetary policy, I find nothing either in theory or the existing empirical evidence to overturn the conclusion that a country like the United States, operating under a flexible exchange rate regime, can ultimately achieve the inflation target of its choice.

Without the contribution of the global workforce, moreover, the quantity and variety of goods and services available in the United States would diminish. I have argued, within the temple of the Fed and without, that globalization has in these and many other ways expanded our concept of “capacity constraints” and redefined our sense of “resource utilization.” It has helped tame inflation. That has been the trend of recent years. But it has not exorcised for once and for all time the demon of inflation.

While energy is increasingly cited as a justification for price increases, many businesses—especially goods producers—can’t or won’t pass along higher costs. In part, that’s because global competition helps keep prices down and thus induces businesses to improve efficiency to maintain profits. The result is higher productivity, which helps to offset increased costs, including energy.

The US really can't solve the current account deficit problem by itself.  It is a global issue.  We need the cooperation of our trading partners.  And altogether, by taking actions which are in our own individual interests, we can also help create a better balance in terms of trade flows as well.

The world economy is very important for certain types of goods. It does nothing, for example, for energy supplies domestically. Think about electricity, the electricity we produce here is not imported from anywhere, maybe a little bit from Canada and Mexico. So there are certain areas of industrial output that are heavily dependent only on local supplies.

Other areas like automobiles would be an obvious example where you can import a lot of goods from abroad. So it varies. Globalization has an important for some parts of the economy but not for others.

The expansion in global economic activity has become more broad-based. In the United States, underlying productivity growth remains strong and some of the structural changes underway in other mature, large economies offer the prospect of greater productivity growth in those countries, as well.

I believe globalization and monetary policy are intertwined in a complex narrative that is only beginning to unfold...The realization of the importance of global economic conditions for making monetary policy decisions is becoming more widespread. 

The creation of vast new sources of inputs and production have upset all the calculations and equations of the very best economics minds, including those of the Federal Reserve staff. Many of the old models simply do not apply in the new real world. This is why I think so many economists have been so baffled by the length of the current business cycle as well as the non-inflationary prosperity we have enjoyed for almost two decades.