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The Globalisation of Inflation: the Growing Importance of Global Value Chains

Raphael Auer, Claudio Borio () and Andrew Filardo

No 300, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional tradebased measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.

JEL-codes: E31 E52 E58 F02 F14 F41 F42 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int, nep-mac, nep-mon and nep-opm
Date: 2017-01-01
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Working Paper: The globalisation of inflation: the growing importance of global value chains (2017) Downloads
Working Paper: The Globalisation of Inflation: The Growing Importance of Global Value Chains (2017) Downloads
Working Paper: The globalisation of inflation: the growing importance of global value chains (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:300

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DOI: 10.24149/gwp300

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