What Drives Inflation in Advanced and Emerging Market Economies?
16 Pages Posted: 17 Apr 2020
Date Written: March 25, 2020
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: Suggested Citation