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Photo: Biddiboo/Getty Images

Globalization has played an increasingly large role in determining the rate of inflation over the last decade, asserts a new Brookings paper from MIT global economics professor Kristen J. Forbes.

Why it matters: With inflation more "determined abroad" than ever and outside the control or purview of central banks, it may be time for a major overhaul in the way they operate.

  • That has major implications for everything from government policy to stock market returns.

Details: In her paper, Forbes highlights 4 areas of globalization that affect inflation:

  • increased trade flows
  • greater use of supply chains to optimize production costs
  • greater role of emerging markets and their impact on commodities
  • and a reduction in the bargaining power of workers.

What it means: Globalization has helped increase company profits by opening up new sales destinations and increasing trade, while also making trade more efficient.

  • It also has allowed companies to ship jobs and services overseas to populations that demand far lower wages, changing the way both workers and companies negotiate wages.
  • This has given employers a decided advantage and has been a major factor in depressing wages and holding back inflation in developed countries like the U.S.

The big picture: The study's findings also suggest that central banks may be losing their power to direct the economy. If raising and lowering interest rates does not produce a corresponding reduction and increase in inflation, then central banks' role as financial arbiters may need to be revamped.

Between the lines: With inflation having failed to exceed the targets of the Fed, European Central Bank and other major central banks, pressure has grown for them to focus more on stimulating economies to provide maximum employment.

  • Focusing on economic stimulus is a central tenet of modern monetary theory (MMT), a previously fringe idea that is gaining acceptance among larger segments of the populace.

The bottom line: If central banks can't completely control inflation, efforts to stimulate or rein it in may be misplaced and/or generally ineffective.

  • Additionally, the findings could mean central banks can afford to focus more of their efforts on pursuing a “high-pressure” economy that pushes unemployment well below a supposed natural rate, rather than being obliged to pump the breaks on the economy when it starts to get hot.

Go deeper

Biden to tap telecom trio for NTIA, FCC posts

Jessica Rosenworcel. Photo: Bill Clark/CQ Roll Call

President Joe Biden on Tuesday is expected to name Alan Davidson as head of the telecom arm of the Commerce Department, Jessica Rosenworcel as chairwoman of the Federal Communications Commission and Gigi Sohn as a commissioner at the FCC, according to a person familiar with the process.

Why it matters: Internet availability and affordability has been a key policy priority for the White House, but the administration lagged in tapping people for the agency posts that oversee the issues.

2 hours ago - Technology

Facebook seeks fountain of youth

Data: Piper Sandler Taking Stock With Teens Study; Chart: Axios Visuals

Facebook CEO Mark Zuckerberg on Monday said that the company is pivoting its strategy to focus on young adults, following reports that teens have fled its apps.

Why it matters: A series of stories based on leaked whistleblower documents suggest the company sees the aging of its user base as an existential threat to its business.

Too big to cover alone: Newsrooms team up

Illustration: Annelise Capossela/Axios

News outlets are increasingly willing to work together on big, multifaceted stories — including this week's reporting on leaked documents from a Facebook whistleblower.

Why it matters: Collaborative efforts help bring more resources to bear on complex stories, some of which require a global reporting effort. But they require high degrees of coordination, and competition can sometimes get in the way.