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Domestic and global output gaps as inflation drivers: What does the Phillips curve tell?

Martina Jašová, Richhild Moessner and Elod Takats

Economic Modelling, 2020, vol. 87, issue C, 238-253

Abstract: We study how domestic and global output gaps affect CPI inflation. We use a New-Keynesian Phillips curve framework which controls for non-linear exchange rate movements for a panel of 26 advanced and 22 emerging economies covering the 1994Q1−2017Q4 period. We find that both global and domestic output gaps are significant drivers of inflation both in the pre-crisis (1994–2008) and post-crisis (2008–2017) periods. Furthermore, after the crisis, in advanced economies the effect of the domestic output gap declines, while in emerging economies the effect of the global output gap declines. Our results suggest that emerging and advanced economies have become more similar to each other in terms of output gaps as inflation drivers. The paper demonstrates the usefulness of the New Keynesian Phillips curve in identifying the impact of global and domestic output gaps on inflation.

Keywords: Output gaps; Global factors; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E58 F62 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Domestic and global output gaps as inflation drivers: what does the Phillips curve tell? (2018) Downloads
Working Paper: Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell? (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:87:y:2020:i:c:p:238-253

DOI: 10.1016/j.econmod.2019.07.025

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