Globalisation has no fundamental bearing on this element of the strategy, but it has some implications: it does underscore the relative importance of price stability as a central bank goal and the need to formulate and conduct monetary policy so as to preserve price stability over a medium-to-longer term horizon.
As I noted earlier, recent research has stressed that increased openness to trade and financial interdependence should reinforce the central bank’s emphasis on the objective of price stability relative to minimising output volatility. 31 Such a result can also be derived in a model with endogenous portfolio choices, while focusing on the risk-sharing properties of cross-border trade in nominal bonds.