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The Global Dimension of Inflation: Evidence from Factor-Augmented Phillips Curve

Aufsätze referiert extern - Web of Science

Sandra Eickmeier, Katharina Pijnenburg

In: Oxford Bulletin of Economics and Statistics 75 (2013), 1, S. 103-122

Abstract

We examine the global dimension of inflation in 24 OECD countries between 1980 and 2007 in a Phillips curve framework. We decompose output gaps and changes in unit labour costs into common (or global) and idiosyncratic components using a factor analysis and introduce these components separately in the regression. We find that the common component of changes in unit labour costs has a notable impact on inflation. Movements in import price inflation (not driven by oil supply) and foreign competition and global interest rate developments also affect inflation. Policy makers need to carefully observe those variables when assessing inflation developments.



JEL-Classification: C33;C50;E31;F41
DOI:
http://dx.doi.org/10.1111/obes.12004

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