Globalization and International Inflation Dynamics: The Role of the Global Output Gap

Pym Manopimoke

No 8, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Globalization has been suggested to increase the sensitivity of domestic inflation to global economic conditions. This paper develops an unobserved components model that is consistent with an open economy New Keynesian Phillips curve (NKPC), and finds that a global output gap has replaced the domestic output gap as the key driving variable for inflation in 17 advanced and emerging countries, particularly since the year 2000. The cross country analysis also suggests that the influence of the global output gap for national price movements is positively correlated to a country's degree of openness in trade. Upon the inclusion of import and oil prices to the NKPC specification, the global output gap remains a significant driving variable for inflation, suggesting that the global output gap matters for inflation beyond the traditional import price channel.

Keywords: Inflation; Globalization; New Keynesian Phillips Curve; Output Gap; Unobserved Components Model (search for similar items in EconPapers)
JEL-codes: E3 E5 F4 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2015-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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