Despite the increased openness of the domestic economy to foreign shocks and greater uncertainty about the monetary policy transmission mechanism, economic volatility in the United States and other advanced economies has declined. That stability may be attributable, in part, to the increasing ability of global product and capital markets to buffer the domestic economy against internal shocks.
Because of globalization, net exports likely absorb a greater proportion of downshifts in domestic spending, foreign competition helps discipline domestic price increases, and – as a consequence of greater cross-border holdings of assets – gains and losses on domestic assets are realized in part by foreign investors.