The global dimension of inflation: evidence from factor-augmented Phillips curves Eickmeier, Sandra; Moll, Katharina

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Eickmeier, Sandra ; Moll, Katharina
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Oxford Bulletin of Economics & Statistics
Phillips curve -- Analysis; Central banks -- Analysis; Inflation (Finance) -- Analysis
To purchase or authenticate to the full-text of this article, please visit this link: Byline: Sandra Eickmeier(1), Katharina Pijnenburg(2) Keywords: C33; C50; E31; F41 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. Author Affiliation: (1)Deutsche Bundesbank, Economic Research Center, Wilhelm-Epstein-Stra[sz]e 14, 60431 Frankfurt/M, Germany (e-mail: (2)Deutsches Institut fur Wirtschaftsforschung Berlin, Mohrenstra[sz]e 58, 10117 Berlin, Germany (e-mail: Article Note: (*) We are grateful to Jorg Breitung, Matteo Ciccarelli, Stefan Gerlach, Heinz Herrmann, Johannes Hoffmann, Mathias Hoffmann, Massimiliano Marcellino, Dieter Nautz, Fabrizio Zampolli, anonymous referees as well as participants of the 10th Bundesbank Spring Conference on 'Central Banks and Globalisation' and of a seminar at the Reserve Bank in New Zealand for helpful comments and discussions. The article was written while Katharina Pijnenburg was visiting the Bundesbank. The views expressed in this article are those of the authors' alone and do not necessarily reflect the views of the Deutsche Bundesbank. Final Manuscript Received: September 2012
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