Global Value Chains and the Phillips Curve: a Challenge for Monetary Policy

Anna Florio, Daniele Siena and Riccardo Zago

Working papers from Banque de France

Abstract: This paper studies how participation and position in Global Value Chains (GVCs) affect the slope of the Phillips Curve (PC) and, consequently, the ability of monetary policy to control inflation. Using data from the European Monetary Union (EMU) and value added measures of GVCs, we show that, beyond the role of trade openness, higher participation leads to a flatter PC. This evidence is consistent with the theoretical literature emphasising how globalisation can reduce the sensitivity of prices to unemployment due to stronger strategic complementarities, to higher market power and to imperfect exchange rate pass through. On the other hand, the role of GVC position is not statistically significant.

Keywords: Monetary Policy; Global Value Chains; Phillips Curve; Price Stickiness; Variable Markups (search for similar items in EconPapers)
JEL-codes: E32 F41 F62 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2024
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:970

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