We are grateful to Jörg Breitung, Matteo Ciccarelli, Stefan Gerlach, Heinz Herrmann, Johannes Hoffmann, Mathias Hoffmann, Massimiliano Marcellino, Dieter Nautz, Fabrizio Zampolli, anonymous referees as well as participants of the 10th Bundesbank Spring Conference on ‘Central Banks and Globalisation’ and of a seminar at the Reserve Bank in New Zealand for helpful comments and discussions. The article was written while Katharina Pijnenburg was visiting the Bundesbank. The views expressed in this article are those of the authors’ alone and do not necessarily reflect the views of the Deutsche Bundesbank.
The Global Dimension of Inflation – Evidence from Factor-Augmented Phillips Curves*
Article first published online: 6 NOV 2012
© Blackwell Publishing Ltd and the Department of Economics, University of Oxford 2012
Oxford Bulletin of Economics and Statistics
Special Issue: Large Data Sets
Volume 75, Issue 1, pages 103–122, February 2013
How to Cite
Eickmeier, S. and Pijnenburg, K. (2013), The Global Dimension of Inflation – Evidence from Factor-Augmented Phillips Curves. Oxford Bulletin of Economics and Statistics, 75: 103–122. doi: 10.1111/obes.12004
- Issue published online: 21 DEC 2012
- Article first published online: 6 NOV 2012
- Final Manuscript Received: September 2012
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.