Inflation Dynamics: Dead, Dormant, or Determined Abroad?
Name
SSRN-id3489524.pdf
Description
Accepted version
Size
1.12 MB
Format
Adobe PDF
Checksum (MD5)
a81eeced1bf70360726c23049f25ced7
Author(s)
Forbes, Kristin J
Date Issued
2019
Journal
Brookings Papers on Economic Activity
Publisher
Project Muse
Version
Author's final manuscript
Abstract
© 2019, Brookings Institution Press. All rights reserved. Inflation dynamics have been difficult to explain over the last decade. This paper explores whether a more comprehensive treatment of globalization can help. CPI inflation has become more synchronized around the world since the 2008 crisis, but core and wage inflation have become less synchronized. Global factors (including commodity prices, world slack, exchange rates, and global value chains) are significant drivers of CPI inflation in a cross-section of countries, and their role has increased over the last decade, particularly the role of nonfuel commodity prices. These global factors, however, do less to improve our understanding of core and wage inflation. Key results are robust to using a less-structured trend-cycle decomposition instead of a Phillips curve framework, with the set of global variables more important for understanding the cyclical component of inflation over the last decade but not the underlying slow-moving inflation trend. Domestic slack still plays a role for all the inflation measures, although globalization has caused some “flattening” of this relationship, especially for CPI inflation. Although CPI inflation is increasingly determined abroad, core and wage inflation are still largely domestic processes.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1353/eca.2019.0015
