Has the rise in globalization reduced US inflation in the 1990s?

This article investigates whether increased globalization of the U.S. econo my has helped hold down inflation in the 1990s. Based on several measures, we find that globalization has increased. Further we find that import price s exert a greater impact on prices of products in industries faced with gre ater import penetration. High foreign excess capacity accounts for much of the recent decline in U.S. inflation. Our results suggest that the decline in inflation is explained by the interaction of increased globalization and high excess foreign capacity. Globalization by itself does not lead to les s inflation, just greater sensitivity to foreign economic conditions.