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Global slack and domestic inflation rates: a structural investigation for G-7 countries

Fabio Milani ()

No 33, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Recent papers have argued that one implication of globalization is that domestic inflation rates may have now become more a function of "global," rather than domestic, economic conditions, as postulated by closed-economy Phillips curves. This paper aims to assess the empirical importance of global output in determining domestic inflation rates by estimating a structural model for a sample of G-7 economies. The model can capture the potential effects of global output fluctuations on both the aggregate supply and the aggregate demand relations in the economy and it is estimated using full-information Bayesian methods. The empirical results reveal a significant effect of global output on aggregate demand in most countries. Through this channel, global economic conditions can indirectly affect inflation. The results, instead, do not seem to provide evidence in favor of altering domestic Phillips curves to include global slack as an additional driving variable for inflation.

JEL-codes: E31 E50 E52 E58 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Date: 2009
Note: Published as: Milani, Fabio (2015), "Global Slack and Domestic Inflation Rates: A Structural Investigation for G-7 Countries," Journal of Macroeconomics 32 (4): 968-981.
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Journal Article: Global slack and domestic inflation rates: A structural investigation for G-7 countries (2010) Downloads
Working Paper: Global Slack and Domestic Inflation Rates: A Structural Investigation for G-7 Countries (2009) Downloads
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