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Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell?

Martina Jasova (), Richhild Moessner and Elod Takats

No 7337, CESifo Working Paper Series from CESifo

Abstract: We study how domestic and global output gaps affect CPI inflation. We use a New-Keynesian Phillips curve framework which controls for nonlinear exchange rate movements for a panel of 26 advanced and 22 emerging economies covering the 1994Q1-2017Q4 period. We find broadly 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. 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: 2018
New Economics Papers: this item is included in nep-mac and nep-mon
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