Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell?
31 Pages Posted: 30 Oct 2018
There are 2 versions of this paper
Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell?
Domestic and Global Output Gaps as Inflation Drivers: What Does the Phillips Curve Tell?
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: Suggested Citation