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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

Trump pardons former fundraiser Elliott Broidy

President Trump has pardoned Elliott Broidy, a former top Republican fundraiser who pleaded guilty late last year to conspiring to violate foreign lobbying laws as part of a campaign to sway the administration on behalf of Chinese and Malaysian interests.

Why it matters: Broidy was a deputy finance chair for the Republican National Committee early in Trump’s presidency, and attempted to leverage his influence in the Trump administration on behalf of his clients. The president's decision to pardon Broidy represents one last favor for a prominent political ally.

Trump grants flurry of last-minute pardons

Photo: Jabin Botsford/The Washington Post via Getty Images

President Trump issued 73 pardons and commuted the sentences of 70 individuals, hours from leaving office early Wednesday, hours from leaving office.

Why it matters: It's a last-minute gift to some of the president's loyalists and an evident use of executive power with only hours left of his presidency. Axios reported in December that Trump planned to grant pardons to "every person who ever talked to me."

Trump pardons Bannon in final hours of presidency

Steve Bannon. Photo: Joe Raedle / Getty Images

President Trump issued an eleventh-hour pardon to his former chief strategist Steve Bannon on Tuesday night, sparing a longtime ally from a federal fraud prosecution over his alleged misappropriation of nonprofit funds.

Why it matters: Bannon was the most high-profile name on a White House list of what's expected to be dozens pardons and commutations, with hours remaining in Trump’s presidency. His pardon of the former Breitbart News chief came as Bannon faced criminal charges stemming from a scheme to privately finance a southern border wall.