The Global Dimension of Inflation – Evidence from Factor‐Augmented Phillips Curves*

Eickmeier, Sandra; Pijnenburg, Katharina

doi:10.1111/obes.12004

Cited by 40 publications

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“…As shown, for example, by Ciccarelli and Mojon (2010) and Mumtaz and Surico (forthcoming), inflation rates across countries strongly comove due to domestic inflation rates being determined, among other things, by external or global forces (e.g. Borio and Filardo (2007), Eickmeier and Pijnenburg (2013)). …”

Section: Introductionmentioning

confidence: 99%

“…Second, we focus on identified, orthogonal shocks, unlike the Global VAR studies presented above which use generalized impulse responses to non-orthogonal shocks which are hard to interpret economically. Third, compared to other studies estimating the impact of foreign influences on domestic inflation based, for example, on Phillips curves (Borio and Filardo (2007), Eickmeier and Pijnenburg (2013)) we fully account for interaction between foreign variables and between foreign and Chinese variables.…”

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confidence: 99%

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China's Role in Global Inflation Dynamics

Eickmeier

Kühnlenz

2016

Macroecon. Dynam.

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Reproduction permitted only if source is stated. 91-3 (Printversion) Non-technical summaryThe global dimension of inflation has become a popular theme for economic researchers in academia and central banks. It has been shown that inflation rates across countries strongly comove due to domestic inflation rates being determined, among others, by foreign or global common forces. China's role in these developments is, however, still somewhat unclear.The significance of China for the world economy has risen enormously over the past 20 years in terms of both GDP and trade. Observers have speculated whether (positive) demand effects in China and subsequent positive effects on international price developments (via rising export and commodity prices) or whether supply effects and subsequent price dampening effects (via declining import prices and competitive pressures) have dominated in the past and, hence, what the net effect of these developments was. The goal of this analysis is to examine empirically the role of Chinese supply and demand shocks in global inflation dynamics and to shed light on the transmission mechanism.We apply a structural dynamic factor model to a large quarterly dataset of 38 countries (including China) between 2002 and 2011 to analyze China's role in global inflation dynamics. We identify Chinese supply and demand shocks and examine their contributions to global price dynamics and the transmission mechanism. Our main findings are as follows. (i) Chinese supply and demand shocks affect prices in other countries significantly. Demand shocks matter slightly more over the sample period than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share explained of international inflation by Chinese shocks is notable (about 5 percent on average over all countries but not more than 13 percent in each region). (ii) Both direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) seem to matter. (iii) Differences in trade exposure (overall and with China) as well as commodity exposure help explaining cross-country differences in price responses. Demand shocks matter slightly more than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share of international inflation explained by Chinese shocks is notable (about 5 percent on average over all countries but not more than 13 percent in each region); (ii) Direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) seem both to matter; (iii) Differences in trade (overall and with China) and in commodity exposure help explaining crosscountry differences in price responses. Nicht-technische ZusammenfassungJEL classification: F41, E31, C3

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Section: Introductionmentioning

confidence: 99%

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China's Role in Global Inflation Dynamics

Eickmeier

Kühnlenz

2016

Macroecon. Dynam.

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“…More specifically, this focuses on CPI inflation at the aggregate level, since the globalisation or comovement of inflation is documented using such data in the studies of Ciccarelli and Mojon (2010), Neely andRapach (2011), Mumtaz andSurico (2012), Eichmeier and Pijenburg (2013), Bataa, Osborn, Sensier and van Dijk (2013), and others. However, to shed light on the nature of this comovement and how it changes over time, (country-specific) foreign inflation is decomposed into core, energy and food components.…”

Section: Decomposing Shortrun Comovementsmentioning

confidence: 99%

“…Papers which document such a link between domestic and international inflation include Ciccarelli and Mojon (2010), Neely and Rapach (2011), Mumtaz and Surico (2012), Eichmeier and Pijenburg (2013), Bataa, Osborn, Sensier and van Dijk (2013), Förster and Tillman (2014). Based on this evidence, and even in the context of the large economies of the US and Euro area, Bernanke (2007) and Trichet (2008), respectively, emphasise the need for central banks to monitor carefully international price developments and analyse their implications for the domestic economy.…”

Section: Introductionmentioning

confidence: 99%

What is the Globalisation of Inflation?

Altansukh¹,

Becker

Bratsiotis

et al. 2016

SSRN Journal

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This paper studies the globalisation of CPI inflation by analysing core, energy and food components, testing for structural breaks in the relationships between domestic inflation and a corresponding country-specific foreign inflation series at the monthly frequency for OECD countries. The iterative methodology employed separates coefficient and variance breaks, while also taking account of outliers. We find that the overall pattern of globalisation in aggregate inflation is largely driven by convergence of the mean levels of the core component from the early 1990s, compatible with the introduction of inflation targeting in many countries of our sample. There is less evidence of increased synchronisation of shortrun movements in core than aggregate inflation, but an increased role for shortrun foreign energy inflation often contributes to the globalisation effect.

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“…The …rst one is the construction of a dataset, comparable to the one used by Jane Ihrig, Steven B. Kamin, Deborah Lindner, and Jaime Marquez (2010), which allows us to have a homogenous de…nition of the foreign gap and the 1 See, for example, Matteo Ciccarelli and Benoit Mojon (2010), Sandra Eickmeier and Katharina Pijnenburg (2013), and Haroon Mumtaz and Paolo Surico (2008).…”

Section: Introductionmentioning

confidence: 99%

Globalization and Inflation: Structural Evidence from a Time Varying VAR Approach

Bianchi

Civelli

2013

SSRN Journal

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Under the Globalization Hypothesis for in ‡ation, as globalization increases, global economic slack should progressively replace the domestic gap in driving in ‡ation. In order to assess the empirical support for this theoretical prediction, we use impulse response functions of in ‡ation to domestic and foreign output gap shocks from a TV-VAR model estimated for eighteen countries. The main results of the analysis are twofold: First, the structural results show that global slack a¤ects the dynamics of in ‡ation in many countries, yet these e¤ects do not get stronger over time. Second, a panel analysis that exploits the cross-section characteristics of the response functions shows that globalization, measured in terms of openness and business cycles integration, is positively related to the e¤ects of global slack on in ‡ation. The degree of openness of a country and its economic integration into the global economy are complementary rather than overlaid forces.JEL Classi…cation: E31, F02, F41

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The Global Dimension of Inflation – Evidence from Factor‐Augmented Phillips Curves*

Abstract: 4Non-technical summary 5

Cited by 40 publications

References 55 publications

China's Role in Global Inflation Dynamics

China's Role in Global Inflation Dynamics

What is the Globalisation of Inflation?

Globalization and Inflation: Structural Evidence from a Time Varying VAR Approach

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