Is Inflation Domestic or Global? Evidence from Emerging Markets

27 Pages Posted: 10 Dec 2018

See all articles by Rudolfs Bems

Rudolfs Bems

International Monetary Fund (IMF); European Central Bank (ECB)

Francesca Caselli

International Monetary Fund (IMF)

Francesco Grigoli

International Monetary Fund (IMF)

Bertrand Gruss

International Monetary Fund (IMF)

Date Written: November 2018

Abstract

Following a period of disinflation during the 1990s and early 2000s, inflation in emerging markets has remained remarkably low and stable. Was this related to a global disinflation environment triggered by China's integration into world trade and the broader globalization inthese economies, or to better domestic policies? In this paper, we review the inflation performance in a sample of 19 large emerging markets in the past couple of decades and quantify the impact of domestic and global factors in determining inflation. We document that thelevel, volatility, and persistence of inflation declined significantly, albeit not uniformly. Our results suggest that longer-term inflation expectations, linked to domestic factors, were the main determinant of inflation. External factors played a considerably smaller role. The results are a useful piece of evidence as emerging markets craft their monetary policies to navigate the future shift in global financial conditions.

Keywords: Globalization, Inflation, Emerging markets, Inflation expectations, Central banks and their policies, Phillips Curve, Globalization: Macroeconomic Impacts

JEL Classification: E31, E58, F62

Suggested Citation

Bems, Rudolfs and Caselli, Francesca and Grigoli, Francesco and Gruss, Bertrand, Is Inflation Domestic or Global? Evidence from Emerging Markets (November 2018). IMF Working Paper No. 18/241. Available at SSRN: https://ssrn.com/abstract=3297661

Rudolfs Bems (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Francesca Caselli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Francesco Grigoli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bertrand Gruss

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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