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The Global Dimension of Inflation – Evidence from Factor‐Augmented Phillips Curves *
Author(s) -
Eickmeier Sandra,
Pijnenburg Katharina
Publication year - 2013
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12004
Subject(s) - economics , inflation (cosmology) , phillips curve , dimension (graph theory) , econometrics , unit (ring theory) , monetary policy , macroeconomics , output gap , monetary economics , mathematics , physics , mathematics education , theoretical physics , pure mathematics
Abstract We examine the global dimension of inflation in 24 OECD countries between 1980 and 2007 in a Phillips curve framework. We decompose output gaps and changes in unit labour costs into common (or global) and idiosyncratic components using a factor analysis and introduce these components separately in the regression. We find that the common component of changes in unit labour costs has a notable impact on inflation. Movements in import price inflation (not driven by oil supply) and foreign competition and global interest rate developments also affect inflation. Policy makers need to carefully observe those variables when assessing inflation developments.