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Global slack as a determinant of U.S. inflation

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  • Enrique Martínez-García
  • Mark A. Wynne

Abstract

Resource utilization, or "slack," is widely held to be an important determinant of inflation dynamics. As the world has become more globalized in recent decades, some have argued that the concept of slack that is relevant is global rather than domestic (the "global slack hypothesis"). This line of argument is consistent with standard New Keynesian theory. However, the empirical evidence is fragile, at best, possibly because of a disconnect between empirical and theory-consistent measures of output gaps.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 123.

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Date of creation: 2012
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Handle: RePEc:fip:feddgw:123

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Keywords: Macroeconomics ; Globalization;

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  1. John M. Roberts, 2006. "Monetary Policy and Inflation Dynamics," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  2. Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers 3355, C.E.P.R. Discussion Papers.
  3. Gamber, Edward N & Hung, Juann H, 2001. "Has the Rise in Globalization Reduced U.S. Inflation in the 1990s?," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 58-73, January.
  4. James A. Orr, 1994. "Has excess capacity abroad reduced U.S. inflationary pressures?," Quarterly Review, Federal Reserve Bank of New York, issue Sum, pages 101-106.
  5. Mark A. Wynne, 2005. "Globalization and monetary policy," Southwest Economy, Federal Reserve Bank of Dallas, issue Jul, pages 1-8.
  6. Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
  7. Enrique Martinez-Garcia & Mark A. Wynne, 2010. "The global slack hypothesis," Staff Papers, Federal Reserve Bank of Dallas, issue Sep.
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