The effective productive capacity of the global economy has substantially increased, in part because of the breakup of the Soviet Union and the integration of China and India into the global marketplace.  And this increase in capacity, in turn, has doubtless contributed to expectations of lower inflation and lower inflation-risk premiums.

[Globalization] undoubtedly enhances standards of living worldwide.  And indeed, those economies that engage in international freight have invariably been boosted...But that process is very disruptive, and indeed, it's associated with a very large turnover of the labor force.

The sooner the Chinese, in their own self-interest, move to a more flexible currency regime, perhaps leading other Asian currencies to become more flexible as well, the better for all participants in the global trading system.

The breakup of the Soviet Union and the integration of China and India into the global trading market...have permitted more of the world's lower-cost productive capacity to be tapped to satisfy global demands for goods and services.  Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings is being deployed in cross-border financing of cost-reducing investments.  The enlargement of global markets for goods, services, and finance has contributed importantly to the favorable inflation performance that we are witnessing in so many countries.  That improved performance has doubtless contributed to lower inflation-related risk premiums, and the lowering of these premiums is reflected in significant declines in nominal and real-long-term rates.

The enlargement of global markets for goods, services, and finance has contributed importantly to the favorable inflation performance that we are witnessing in so many countries.

Long-term interest rates in the U.S. have actually fallen, despite the fact that the FOMC has tightened policy eight times over the past year. Several possible explanations of this have focused on global developments, such as increased purchases of government securities by Asian central banks and a worldwide excess supply of savings. But it is difficult to gauge the magnitude of these effects, and, as far as I am concerned, low long-term rates are still a “conundrum,” to borrow a term that Chairman Greenspan has used recently.

In my opinion, globalization is a net positive for the world economy. Increased flows of goods, services and capital across national borders generally enhance efficiency and should help individual economies become more flexible and resilient. But there are some costs as well; one that pertains to monetary policy is that globalization makes it harder to see what’s driving the economic events that we have to deal with.

The relatively low levels of inflation that prevailed over the past decade provide another example of how increasing globalization may be changing the dynamics of the economy. Some have suggested that the Phillips curve has shifted, perhaps owing to the effects of increased globalization.

Developments like increasing globalization and financial liberalization have changed, and continue to alter macroeconomic linkages, perhaps in fundamental ways. As a result, there is more uncertainty in the economy, and that’s an environment in which it is even harder for policymakers to determine the appropriate responses to economic events.

Today, I find many people blaming globalization for some of the changes we are facing as a nation. I am more inclined to see these changes as a natural by-product of our own economic development, and only accelerated by globalization...If we want to improve our living standards, then we have to accept the hard truth that some businesses and occupations will become obsolete along the way and others will spring up to take their place...Our economic future will depend on our ability to continue to let go of the past.

Globalization has progressed in conjunction with a substantial narrowing of inflation differentials across countries over the past twenty years, as the number of countries with high inflation has declined. It may be that globalized financial markets are more effective at punishing inflationary policies and that increased competition in goods markets helps to tame inflationary pressure.

Currently, bond yields in Europe, the United States, and Canada are quite similar and are at low levels not seen in decades. Globalization may have played a role in this convergence, though the channel is not clear. I suspect that the convergence of inflation rates and inflation expectations to common low levels is an important factor.

Like the introduction of new technologies, the globalization of the marketplace has been and continues to be a good thing. It fosters greater specialization and gains from trade, affording everyone higher living standards.

Increasingly, then, U.S. firms compete with firms around the world in the markets for raw materials and final goods and services, while U.S. workers compete with workers around the world for positions in a widening array of occupations and industries. From the macroeconomic perspective, this globalization of the marketplace and the increased degree of competition it brings are powerful forces that can alter the wage and price dynamics of the U.S. economy and, indeed, have done so over this cycle, persistently dampening upward price pressures.

Although a complete understanding of the reasons remains elusive, globalization and innovation would appear to be essential elements of any paradigm capable of explaining the events of the past ten years. If this is indeed the case, because the extent of globalization and the speed of innovation are limited, the current apparent rapid pace of structural shift cannot continue indefinitely. While the outlook for the next year or two seems reasonably bright, the outlook for the latter part of this decade remains opaque because it is uncertain whether this transitional paradigm, if that is what it is, is already far advanced and about to slow, or whether it remains in an early, still-vibrant stage of evolution.