Globalisation, import prices and inflation dynamics
AbstractIn this paper we model the role of open-economy effects within a New Keynesian Phillips Curve (NKPC) via the inclusion of intermediate imports in firms' production technology. Using this framework we provide evidence on two questions: first, does the inclusion of import prices help explain post-war inflation dynamics in the United Kingdom , United States and Japan; and second, has the influence of import prices in firms' costs become greater over the more recent period since the mid-1980s. Overall, our results suggest that import prices do help explain movements in inflation; in particular, NKPC models that allow for import prices to enter into firms' costs outperform closed-economy models in sample. However, our results suggest that the influence of import prices has generally remained constant across our sample period, with perhaps only the United Kingdom providing some evidence that import prices have become more important in firms' marginal costs.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 359.
Length: 23 pages
Date of creation: 22 Dec 2008
Date of revision:
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Globalisation; inflation dynamics; import prices; New Keynesian Phillips Curves;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-CBA-2009-01-03 (Central Banking)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-OPM-2009-01-03 (Open Economy Macroeconomics)
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