Advanced Economy Inflation: The Role of Global Factors

28 Pages Posted: 30 Aug 2016

See all articles by Irena Mikolajun

Irena Mikolajun

Tinbergen Institute

David Lodge

European Central Bank (ECB)

Date Written: August 30, 2016


A number of studies document the prominent role of global factors in domestic inflation developments (e.g. Borio and Filardo, 2007; Ciccarelli and Mojon, 2010). In this paper we investigate global dimensions of advanced economy inflation. We estimate open-economy Phillips curves for 19 advanced economies. We include backward and forward-looking survey measures of inflation expectations and augment Phillips curves with global factors including global economic slack, global inflation and commodity prices. Our results provide little support for the existence of direct effects of global economic slack on domestic inflation. Moreover, the results suggest that the importance of global inflation in forecasting domestic inflation has its roots solely in its ability to capture slow-moving trends in inflation rates. In the Phillips curve context much the same role is performed by domestic forward-looking inflation expectations. With the exception of commodity prices therefore our results reveal little reason to include global factors into traditional reduced form Phillips curves.

Keywords: inflation, Phillips curve, global economic slack, global inflation, forecasting, advanced economies

JEL Classification: E31, E32, E37

Suggested Citation

Mikolajun, Irena and Lodge, David, Advanced Economy Inflation: The Role of Global Factors (August 30, 2016). ECB Working Paper No. 1948, Available at SSRN:

Irena Mikolajun (Contact Author)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA

David Lodge

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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