Inflation Dynamics: Dead, Dormant, or Determined Abroad?

Kristin Forbes

No 14195, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Inflation dynamics have been difficult to explain over the last decade. This paper explores if a more comprehensive treatment of globalization can help. CPI inflation has become more synchronized around the world since the 2008 crisis, but core and wage inflation have become less synchronized. Global factors (including commodity prices, world slack, exchange rates, and global value chains) are significant drivers of CPI inflation in a cross-section of countries, and their role has increased over the last decade, particularly the role of non-fuel commodity prices. These global factors, however, do less to improve our understanding of core and wage inflation. Key results are robust to using a less-structured trend-cycle decomposition instead of a Phillips curve framework, with the set of global variables more important for understanding the cyclical component of inflation over the last decade, but not the underlying slow-moving inflation trend. Domestic slack still plays a role for all the inflation measures, although globalization has caused some “flattening†of this relationship, especially for CPI inflation. Although CPI inflation is increasingly “determined abroad†, core and wage inflation is still largely a domestic process.

Keywords: inflation; Phillips curve; Trend-cycle; Price dynamics; Globalization; Commodity prices (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 E58 F62 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (56)

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Related works:
Journal Article: Inflation Dynamics: Dead, Dormant, or Determined Abroad? (2019)
Working Paper: Inflation Dynamics: Dead, Dormant, or Determined Abroad? (2019)
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