Inflation As a Global Phenomenon - Some Implications for Inflation Modelling and Forecasting: Model Derivations and Additional Results

35 Pages Posted: 28 Nov 2017

See all articles by Ayşe Kabukcuoglu Dur

Ayşe Kabukcuoglu Dur

North Carolina State University; North Carolina State University - Department of Economics

Enrique Martínez-García

Federal Reserve Bank of Dallas - Research Department

Date Written: November 20, 2017

Abstract

Kabukçuoğlu and Martínez-García (Forthcoming) model local inflation dynamics using global inflation and domestic slack motivated by a novel interpretation of the implications of the workhorse open-economy New Keynesian model. Then, Kabukçuoğlu and Martínez-García (Forthcoming) evaluate the pseudo out-of-sample performance of inflation forecasts based on the theoretically-consistent single-equation forecasting specification implied by theory, exploiting the international linkages of inflation. In this paper, we provide a detailed description of the structure of the workhorse open-economy New Keynesian model underlying their analysis derived from first principles. Furthermore, we characterize the solution of the log-linearized model under Wicksellian-style Taylor (1993) monetary policy rules and prove analytically the key equilibrium relationships that Kabukçuoğlu and Martínez-García (Forthcoming) use for inflation forecasting. We make note in particular of the role that the slope of the Phillips curve plays in the equilibrium solution of the workhorse open-economy New Keynesian model and for forecasting purposes. We also include additional results (robustness checks) that support and complement the pseudo out-of-sample forecasting evaluation exercises and the in-sample analysis of the fit of the model reported in Kabukçuoğlu and Martínez-García (Forthcoming).

Keywords: Inflation Dynamics, Open-Economy Phillips Curve, Forecasting

JEL Classification: C21, C23, C53, F41, F47, F62

Suggested Citation

Kabukçuoğlu Dur, Ayşe and Kabukçuoğlu Dur, Ayşe and Martinez-Garcia, Enrique, Inflation As a Global Phenomenon - Some Implications for Inflation Modelling and Forecasting: Model Derivations and Additional Results (November 20, 2017). Available at SSRN: https://ssrn.com/abstract=3075564 or http://dx.doi.org/10.2139/ssrn.3075564

Ayşe Kabukçuoğlu Dur

North Carolina State University ( email )

2801 Founders Dr
Raleigh, NC 27695
United States

HOME PAGE: http://aysekabukcuoglu.weebly.com

North Carolina State University - Department of Economics ( email )

Raleigh, NC 27695-8110
United States

HOME PAGE: http://aysedur.com

Enrique Martinez-Garcia (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States
214-922-5262 (Phone)

HOME PAGE: http://sites.google.com/view/emgeconomics

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