Global factors and trend inflation

Güneş Kamber, Benjamin Wong

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4 Citations (Scopus)

Abstract

We develop an empirical model to study the influence of global factors in driving trend inflation and the inflation gap. We apply our model to 7 developed economies and 21 emerging market economies. Our results suggest that while global factors can have a sizeable influence on the inflation gap, they play only a marginal role in driving trend inflation. Much of the influence of global factors in the inflation gap may be reflecting commodity price shocks. Finally, we find the effect of global factors to be greater in our sample of emerging market economies relative to the developed economies. There is some evidence which suggest propagation mechanisms, which may reflect institutional structures or policy choices, can explain the greater role for global factors in driving trend inflation in emerging market economies.
Original languageEnglish
Article number103265
Number of pages14
JournalJournal of International Economics
Volume122
DOIs
Publication statusPublished - Jan 2020

Keywords

  • Beveridge-Nelson decomposition
  • Foreign shocks
  • Trend inflation

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