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Globalisation, domestic inflation and the global output gaps: evidence from the Euro era

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  • Alessandro Calza

Abstract

This paper tests whether the proposition that globalisation 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 PPPs and trade data) are considered. We find little evidence that global capacity constraints have either explanatory or predictive 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.

Suggested Citation

  • Alessandro Calza, 2008. "Globalisation, domestic inflation and the global output gaps: evidence from the Euro era," Globalization Institute Working Papers 13, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:13
    Note: Published as: Calza, Alessandro (2009), "Globalisation, Domestic Inflation and Global Output Gaps: Evidence from the Euro Area," International Finance 12 (3): 301-320.
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    References listed on IDEAS

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    Cited by:

    1. Axel Weber & Rafael Gerke & Andreas Worms, 2011. "Changes in euro area monetary transmission?," Applied Financial Economics, Taylor & Francis Journals, vol. 21(3), pages 131-145.
    2. Calista Cheung, 2009. "Are Commodity Prices Useful Leading Indicators of Inflation?," Discussion Papers 09-5, Bank of Canada.
    3. Gunnella, Vanessa & Al-Haschimi, Alexander & Benkovskis, Konstantins & Chiacchio, Francesco & de Soyres, François & Di Lupidio, Benedetta & Fidora, Michael & Franco-Bedoya, Sebastian & Frohm, Erik & G, 2019. "The impact of global value chains on the euro area economy," Occasional Paper Series 221, European Central Bank.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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