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Inflation as a Global Phenomenon—Some Implications for Policy Analysis and Forecasting

Ayşe Kabukçuoğlu and Enrique Martínez-García ()
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Enrique Martínez-García: Federal Reserve Bank of Dallas & Southern Methodist University

Authors registered in the RePEc Author Service: Enrique Martínez García ()

Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum

Abstract: We evaluate the performance of inflation forecasts based on the open-economy Phillips curve by exploiting the spatial pattern of international propagation of inflation. We model these spatial linkages using global inflation and either domestic slack or oil price fluctuations, motivated by a novel interpretation of the forecasting implications of the workhorse open-economy New Keynesian model (Martínez-García and Wynne (2010), Kabukcuoglu and Martínez-García (2014)). We find that incorporating spatial interactions yields significantly more accurate forecasts of local inflation in 14 advanced countries (including the U.S.) than a simple autoregressive model that captures only the temporal dimension of the inflation dynamics.

Keywords: Inflation Dynamics; Open-Economy Phillips Curve; Forecasting. (search for similar items in EconPapers)
JEL-codes: C21 C23 C53 F41 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-for and nep-mon
Date: 2015-10
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Working Paper: Inflation as a global phenomenon - some implications for policy analysis and forecasting (2016) Downloads
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