Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell?

31 Pages Posted: 30 Oct 2018

See all articles by Martina Jasova

Martina Jasova

Columbia University, Barnard College - Department of Economics

Richhild Moessner

Bank for International Settlements (BIS)

Előd Takáts

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: September 28, 2018

Abstract

We study how domestic and global output gaps affect CPI inflation. We use a New Keynesian Phillips curve framework, which controls for non-linear exchange rate movements for a panel of 26 advanced and 22 emerging economies covering the 1994Q1-2017Q4 period. We find broadly that both global and domestic output gaps are significant drivers of inflation both in the pre-crisis (1994-2008) and post-crisis (2008-2017) periods. Furthermore, after the crisis, in advanced economies the effect of the domestic output gap declines, while in emerging economies the effect of the global output gap declines. The paper demonstrates the usefulness of the New Keynesian Phillips curve in identifying the impact of global and domestic output gaps on inflation.

Keywords: output gaps, global factors, inflation

JEL Classification: E31, E58, F62

Suggested Citation

Jasova, Martina and Moessner, Richhild and Takáts, Előd, Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell? (September 28, 2018). BIS Working Paper No. 748, Available at SSRN: https://ssrn.com/abstract=3258761

Martina Jasova (Contact Author)

Columbia University, Barnard College - Department of Economics ( email )

3009 Broadway
New York, NY 10027
United States

Richhild Moessner

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Előd Takáts

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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