An empirical analysis of inflation in OECD countries
AbstractOne of the most remarkable macroeconomic developments of the past decade has been the widespread decline in inflation despite declines in unemployment rates. For the United States, these seemingly contradictory developments have been reconciled in terms of three factors: (1) an acceleration in productivity, (2) structural changes in labor markets that lowered the natural unemployment rate (NAIRU), and (3) improved credibility of monetary policy. Here we ask whether comparable factors were at work in foreign industrial countries. To address this question, we empirically characterize the relationship between inflation, the unemployment rate, and structural factors using an extended Phillips curve model with quarterly data through 1994. By undertaking counterfactual simulations from 1995 to 2001, we quantify the separate contributions of unemployment-rate movements, labor-market reforms (that affected the NAIRU), and productivity developments on inflation. In line with previous work on the United States, we find that productivity advancements were the main structural factor reducing inflation in the United States. For foreign countries, persistent labor-market slack was the main factor exerting downward pressure on inflation. This persistence stemmed, in part, from structural reforms that lowered the NAIRU while the unemployment rate was declining.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 765.
Date of creation: 2003
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laurence Ball & N. Gregory Mankiw, 2002.
"The NAIRU in Theory and Practice,"
NBER Working Papers
8940, National Bureau of Economic Research, Inc.
- Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
- Laurence Ball & N Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Economics Working Paper Archive 475, The Johns Hopkins University,Department of Economics.
- Christopher Gust & Jaime Marquez, 2000. "Productivity developments abroad," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 665-681.
- Gruen, David & Pagan, Adrian & Thompson, Christopher, 1999.
"The Phillips curve in Australia,"
Journal of Monetary Economics,
Elsevier, vol. 44(2), pages 223-258, October.
- Laurence Ball & Robert Moffitt, 2001.
"Productivity Growth and the Phillips Curve,"
Economics Working Paper Archive
450, The Johns Hopkins University,Department of Economics.
- Steven B. Kamin & Mario Marazzi & John W. Schindler, 2004. "Is China "exporting deflation"?," International Finance Discussion Papers 791, Board of Governors of the Federal Reserve System (U.S.).
- Joseph P. Daniels & David D. VanHoose, 2007.
"Openness, Income-Tax Progressivity, and Inflation,"
Working Papers and Research
0704, Marquette University, Center for Global and Economic Studies and Department of Economics.
- Joseph P. Daniels & Farrokh Nourzad & David D. VanHoose, 2005.
"Openness, Centralized Wage Bargaining, and Inflation,"
Working Papers and Research
0505, Marquette University, Center for Global and Economic Studies and Department of Economics.
- Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
- Francisco Rosende R., 2004. "El marco teórico de la política monetaria," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 19(2), pages 85-117, December.
- Kitov, Ivan, 2007.
"Inflation, unemployment, labor force change in European countries,"
14557, University Library of Munich, Germany.
- Ivan Kitov, 2007. "Inflation, Unemployment, Labor Force Change in European Counties," Mechonomics mechonomics7, Socionet.
- Francisco Rosende, 2003. "ConducciÃ³n de la PolÃtica Monetaria," Documentos de Trabajo 247, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Preston J. Miller & Gary H. Stern, 2004. "Avoiding significant monetary policy mistakes," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Dec, pages 2-9.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).
If references are entirely missing, you can add them using this form.