And it is here to stay. Financial conditions in developed economies have deteriorated. There is still uncertainty about the global banking system’s real exposure to losses associated to off-balance sheet special investment vehicles. In turn, the ongoing decline of the US real estate market clouds prospects for recovery, since it affects the quality of underlying assets.
In addition to the effects of globalisation on inflation through the channels I previously described, globalisation can affect both long-term inflation and its short-term dynamics by affecting a country’s potential growth as well as global potential growth and the movements of capital and liquidity across borders.