Location of Repository

Global Slack and Domestic Inflation Rates: A Structural Investigation for G-7 Countries

By Fabio Milani

Abstract

Recent papers have argued that one implication of globalization is that domestic inflation rates may have now become more a function of ``global", rather than domestic, economic conditions, as postulated by closed-economy Phillips curves. This paper aims to assess the empirical importance of global output in determining domestic inflation rates by estimating a structural model for a sample of G-7 economies. The model can capture the potential effects of global output fluctuations on both the aggregate supply and the aggregate demand relations in the economy and it is estimated using full-information Bayesian methods. The empirical results reveal a significant effect of global output on aggregate demand in most countries. Through this channel, global economic conditions can indirectly affect inflation. The results, instead, do not seem to provide evidence in favor of altering domestic Phillips curves to include global slack as an additional driving variable for inflation.Globalization; Global Slack; Inflation Dynamics; Phillips Curve; Bayesian Estimation

OAI identifier:

Suggested articles

Preview

Citations

  1. (2004). A Decomposition of Global Linkages in Financial Markets Over Time,"
  2. (2002). A Simple Framework for International Monetary Policy Analysis",
  3. (2007). Bayesian Analysis of DSGE Models",
  4. (2006). Designing targeting rules for international monetary policy cooperation,"
  5. (2009). Does Global Liquidity Help to Forecast US In°ation?",
  6. (2008). Evolving International In°ation Dynamics: World and Country Speci¯c Factors", CEPR discussion paper No 6767.
  7. (2007). Flattened In°ation-Output Tradeo® and Enhanced Anti-In°ation Policy: Outcome of Globalization?"
  8. (2009). Global In°ation,"
  9. (2007). Globalisation and In°ation: New Cross-Country Evidence on the Global Determinants of Domestic In°ation," Working Paper No 227, Bank for International Settlements.
  10. (2008). Globalisation, Domestic In°ation and Global Output Gaps: Evidence from the Euro Area", European Central Bank Working Paper No.
  11. (2003). Globalization and Global Disin°ation" in Monetary Policy and Uncertainty: Adapting to a Changing Economy, Federal Reserve Bank of Kansas City.
  12. (2007). Globalization and In°ation Dynamics: The Impact of Increased Competition,"
  13. (2005). Globalization and In°ation-Output Tradeo®s,"
  14. (2007). Globalization and Monetary Control,"
  15. (2007). Globalization and Monetary Policy", Speech to Stanford Institute for Economic Policy Research,
  16. (2005). Globalization and Monetary Policy", Warren and Anita Manshel Lecture in American Foreign Policy,
  17. (2008). Globalization and the Phillips Curve", mimeo,
  18. (1998). Globalization and U.S. In°ation", Federal Reserve Bank of Boston, New England Economic Review,
  19. (2009). Has Global Slack Become More Important than Domestic Slack in Determining U.S.
  20. (2006). Has Globalization Changed In°ation?",
  21. (2006). Impact of Globalization on Monetary Policy," in The New Economic Geography: E®ects and Policy Implications, Federal Reserve Bank of Kansas City.
  22. (2009). In°ation-Gap Persistence in the U.S.",
  23. (2008). International Competition and In°ation: A New Keynesian Perspective", Board of Governors of the Federal Reserve System, Working
  24. (2007). International Transmission And Monetary Policy Cooperation",
  25. (2005). Nominal Rigidities and the Dynamic E®ects of a Shock to Monetary Policy,"
  26. (2007). Openness and In°ation,"
  27. (1993). Openness and In°ation: Theory and Evidence",
  28. (2007). Some Simple Tests of the Globalization and In°ation Hypothesis," Board of Governors of the Federal Reserve System,
  29. (2002). The `New Keynesian' Phillips Curve: Closed Economy versus Open Economy,"
  30. (2006). The E®ects of Globalization on In°ation and Their Implications for Monetary Policy", Speech at the Federal Reserve Bank
  31. (2007). Tracking U.S. In°ation Expectations with Domestic and Global Determinants," mimeo,
  32. (2008). Trend In°ation, Indexation, and In°ation Persistence in the New Keynesian Phillips Curve",

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.