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

20 Pages Posted: 23 Dec 2012

See all articles by Sandra Eickmeier

Sandra Eickmeier

Deutsche Bundesbank

Katharina Pijnenburg

German Institute for Economic Research (DIW Berlin)

Multiple version iconThere are 4 versions of this paper

Date Written: February 2013

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

Suggested Citation

Eickmeier, Sandra and Pijnenburg, Katharina, The Global Dimension of Inflation – Evidence from Factor‐Augmented Phillips Curves (February 2013). Oxford Bulletin of Economics and Statistics, Vol. 75, Issue 1, pp. 103-122, 2013. Available at SSRN: https://ssrn.com/abstract=2193212 or http://dx.doi.org/10.1111/obes.12004

Sandra Eickmeier (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
Frankfurt/Main D-60431
Germany

Katharina Pijnenburg

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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