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Globalization, Domestic Inflation and Global Output Gaps: Evidence from the Euro Area

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  • Alessandro Calza
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    Abstract

    This paper tests whether the proposition that globalization has led to greater sensitivity of domestic inflation to the global output gap (the 'global output gap hypothesis') holds for the euro area. The empirical analysis uses quarterly data over the period 1979-2003. Measures of the global output gap using two different weighting schemes (based on purchasing power parities and trade data) are considered. We find limited evidence that global capacity constraints have explanatory power for domestic consumer price inflation in the euro area. Based on these findings, the prescription that central banks should specifically react to developments in global output gaps does not seem to be justified for the euro area. Copyright 2009 Blackwell Publishing Ltd

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal International Finance.

    Volume (Year): 12 (2009)
    Issue (Month): 3 (December)
    Pages: 301-320

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    Handle: RePEc:bla:intfin:v:12:y:2009:i:3:p:301-320

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    Cited by:
    1. Qin, Duo & He, Xinhua, 2011. "Globalisation effect on inflation in the great moderation era: new evidence from G10 countries," MPRA Paper 32994, University Library of Munich, Germany.
    2. Gregor Schwerhoff & Mouhamadou Sy, 2014. "The Non-Monetary Side of the Global Disinflation," Open Economies Review, Springer, vol. 25(2), pages 337-371, April.
    3. Çiçek, Serkan, 2012. "Globalization and flattening of Phillips Curve in Turkey between 1987 and 2007," Economic Modelling, Elsevier, vol. 29(5), pages 1655-1661.

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