Economics at your fingertips  

Inflation as a global phenomenon—Some implications for inflation modeling and forecasting

Ayşe Kabukçuoğlu Dur and Enrique Martínez-García
Authors registered in the RePEc Author Service: Enrique Martínez García ()

Journal of Economic Dynamics and Control, 2018, vol. 87, issue C, 46-73

Abstract: We model local inflation dynamics using global inflation and domestic slack motivated by a novel interpretation of the implications of the workhorse open-economy New Keynesian model. We evaluate the performance of inflation forecasts based on the single-equation forecasting specification implied by the model, exploiting the spatial pattern of international linkages underpinning global inflation. We find that incorporating cross-country interactions yields significantly more accurate forecasts of local inflation for a diverse group of 14 advanced countries (including the U.S.) than either a simple autoregressive model or a standard closed-economy Phillips curve-based forecasting model. We argue that modeling the temporal dimension—but not the cross-country spillovers—of inflation does limit a model’s explanatory power in-sample and its (pseudo) out-of-sample forecasting performance. Moreover, we also show that global inflation (without domestic slack) often contributes the most to achieve the gains on forecasting accuracy observed during our sample period (1984:Q1-2015:Q1)—this observation, according to theory, is crucially related to the flattening of the Phillips curve during this time period of increased globalization.

Keywords: Inflation dynamics; Open-economy Phillips curve; Forecasting (search for similar items in EconPapers)
JEL-codes: C21 C23 C53 F41 F47 F62 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Inflation as a global phenomenon - some implications for policy analysis and forecasting (2016) Downloads
Working Paper: Inflation as a Global Phenomenon—Some Implications for Policy Analysis and Forecasting (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jedc.2017.11.006

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-09-15
Handle: RePEc:eee:dyncon:v:87:y:2018:i:c:p:46-73