What Drives Inflation in Advanced and Emerging Market Economies?

16 Pages Posted: 17 Apr 2020

See all articles by Güneş Kamber

Güneş Kamber

Bank for International Settlements (BIS) - Monetary and Economic Department

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department

James Morley

University of Sydney - School of Economics

Date Written: March 25, 2020

Abstract

Kamber et al (2020) investigate possible changes in the driving forces of inflation for a panel of 47 advanced and emerging market economies over a sample period from 1996 to 2018. Overall, the results support an open economy hybrid Phillips curve model of inflation with increased weight on expected future inflation and an important role of the foreign output gap. The estimated effects of inflation expectations, output gaps, exchange rate pass-through and oil prices are heterogeneous across different economies, with generally larger effects of external driving forces for emerging market economies. Also, despite some structural changes, the parameters of the model show a surprising degree of stability before, during and after the Great Financial Crisis. For many economies, the estimated effect of a given variable does not change at all over the full sample period, while the behaviour of the variables in the model can explain patterns of changes in both the level and volatility of inflation over time.

Full Publication: Inflation Dynamics in Asia and the Pacific

Keywords: open economy Phillips curve; structural breaks; inflation expectations; exchange rate pass-through; inflation volatility

JEL Classification: E31; F31; F41

Suggested Citation

Kamber, Gunes and Mohanty, Madhusudan S. and Morley, James, What Drives Inflation in Advanced and Emerging Market Economies? (March 25, 2020). BIS Paper No. 111a, Available at SSRN: https://ssrn.com/abstract=3575893

Gunes Kamber (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Madhusudan S. Mohanty

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

James Morley

University of Sydney - School of Economics ( email )

Rm 607 Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

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