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

Fabio Milani

No 80919, Working Papers from University of California-Irvine, Department of Economics

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.

Keywords: Globalization; Global Slack; Inflation Dynamics; Phillips Curve; Bayesian Estimation (search for similar items in EconPapers)
JEL-codes: E31 E50 E52 E58 F41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-02
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Global slack and domestic inflation rates: A structural investigation for G-7 countries (2010)
Working Paper: Global slack and domestic inflation rates: a structural investigation for G-7 countries (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:irv:wpaper:080919

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