Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Effect of Global Output on U.S. Inflation and Inflation Expectations: A Structural Estimation

Contents:

Author Info

  • Fabio Milani

    ()
    (Department of Economics, University of California-Irvine)

Abstract

Recent research has suggested that globalization may have transformed the U.S. Phillips curve by making inflation a function of global, rather than domestic, economic activity. This paper tests this view by estimating a structural model for the U.S., which incorporates a role of global output on the domestic demand and supply relations and on the formation of expectations. Expectations are modeled as near-rational and economic agents are allowed to learn about the economy's coefficients over time. The estimation reveals small and negative coefficients for the sensitivity of inflation to global output; moreover, the fit of the model improves when global output is excluded from the Phillips curve. Therefore, the evidence does not support altering the traditional closed-economy Phillips curve to include global output. The data suggest, instead, that global output may play an indirect role through the determination of domestic output. But the overall impact of global economic conditions on U.S. inflation remains negligible.

Download Info

If 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.
File URL: http://www.economics.uci.edu/files/economics/docs/workingpapers/2008-09/milani-20.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 080920.

as in new window
Length: 28 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:irv:wpaper:080920

Contact details of provider:
Postal: Irvine, CA 92697-3125
Phone: (949) 824-5788
Web page: http://www.economics.uci.edu/
More information through EDIRC

Related research

Keywords: Globalization; Global output; Inflation dynamics; New Keynesian Phillips curve; Global slack hypothesis; Constant-gain learning;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Adam, Klaus, 2003. "Learning to Forecast and Cyclical Behavior of Output and Inflation," CFS Working Paper Series, Center for Financial Studies (CFS) 2003/01, Center for Financial Studies (CFS).
  2. Marc Giannoni & Michael Woodford, 2004. "Optimal Inflation-Targeting Rules," NBER Chapters, National Bureau of Economic Research, Inc, in: The Inflation-Targeting Debate, pages 93-172 National Bureau of Economic Research, Inc.
  3. Guerrieri, Luca & Gust, Christopher & López-Salido, J David, 2009. "International Competition and Inflation: A New Keynesian Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7561, C.E.P.R. Discussion Papers.
  4. Rabanal, Pau & Rubio-Ramirez, Juan F., 2005. "Comparing New Keynesian models of the business cycle: A Bayesian approach," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(6), pages 1151-1166, September.
  5. Peter N. Ireland, 1999. "Sticky-Price Models of the Business Cycle: Specification and Stability," Boston College Working Papers in Economics, Boston College Department of Economics 426, Boston College Department of Economics.
  6. Adam, Klaus, 2005. "Experimental Evidence on the Persistence of Output and Inflation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4885, C.E.P.R. Discussion Papers.
  7. Geoffrey M.B. Tootell, 1998. "Globalization and U.S. inflation," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Jul, pages 21-33.
  8. Forbes, Kristen & Chinn, Menzie David, 2003. "A Decomposition of Global Linkages in Financial Markets Over Time," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4414-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Milani, Fabio, 2006. "A Bayesian DSGE Model with Infinite-Horizon Learning: Do "Mechanical" Sources of Persistence Become Superfluous?," MPRA Paper 809, University Library of Munich, Germany.
  10. Carceles-Poveda, Eva & Giannitsarou, Chryssi, 2007. "Adaptive learning in practice," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(8), pages 2659-2697, August.
  11. 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, Western Economic Association International, vol. 39(1), pages 58-73, January.
  12. Jane Ihrig & Steven B. Kamin & Deborah Lindner & Jaime Marquez, 2007. "Some simple tests of the globalization and inflation hypothesis," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 891, Board of Governors of the Federal Reserve System (U.S.).
  13. Clarida, Richard & Galí, Jordi & Gertler, Mark, 2002. "A Simple Framework for International Monetary Policy Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3355, C.E.P.R. Discussion Papers.
  14. Fabio Milani, 2009. "Global Slack and Domestic Inflation Rates: A Structural Investigation for G-7 Countries," Working Papers, University of California-Irvine, Department of Economics 080919, University of California-Irvine, Department of Economics.
  15. Sungbae An & Frank Schorfheide, 2006. "Bayesian analysis of DSGE models," Working Papers 06-5, Federal Reserve Bank of Philadelphia.
  16. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1473, C.E.P.R. Discussion Papers.
  17. Gianluca Benigno & Pierpaolo Benigno, 2008. "Implementing international monetary cooperation through inflation targeting," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 35633, London School of Economics and Political Science, LSE Library.
  18. Seppo Honkapohja & Kaushik Mitra & George W. Evans, 2011. "Notes on Agents¡¯ Behavioral Rules Under Adaptive Learning and Studies of Monetary Policy," CDMA Working Paper Series, Centre for Dynamic Macroeconomic Analysis 201102, Centre for Dynamic Macroeconomic Analysis.
  19. Mark A. Wynne & Erasmus K. Kersting, 2007. "Openness and inflation," Staff Papers, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Apr.
  20. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports, Federal Reserve Bank of New York 324, Federal Reserve Bank of New York.
  21. Jean Boivin & Marc Giannoni, 2008. "Global Forces and Monetary Policy Effectiveness," NBER Working Papers 13736, National Bureau of Economic Research, Inc.
  22. Antonello D'Agostino & Paolo Surico, 2009. "Does Global Liquidity Help to Forecast U.S. Inflation?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 41(2-3), pages 479-489, 03.
  23. Fabio Milani, 2007. "Learning and Time-Varying Macroeconomic Volatility," Working Papers, University of California-Irvine, Department of Economics 070802, University of California-Irvine, Department of Economics.
  24. Fabio Milani, 2005. "Learning, Monetary Policy Rules, and Macroeconomic Stability," Macroeconomics, EconWPA 0508019, EconWPA.
  25. Preston, Bruce, 2008. "Adaptive learning and the use of forecasts in monetary policy," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(11), pages 3661-3681, November.
  26. Benigno, Gianluca & Benigno, Pierpaolo, 2006. "Designing targeting rules for international monetary policy cooperation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(3), pages 473-506, April.
  27. Laurence M. Ball, 2006. "Has Globalization Changed Inflation?," NBER Working Papers 12687, National Bureau of Economic Research, Inc.
  28. Assaf Razin & Prakash Loungani, 2005. "Globalization and Inflation-Output Tradeoffs," NBER Working Papers 11641, National Bureau of Economic Research, Inc.
  29. Marcet, Albert & Sargent, Thomas J., 1989. "Convergence of least squares learning mechanisms in self-referential linear stochastic models," Journal of Economic Theory, Elsevier, Elsevier, vol. 48(2), pages 337-368, August.
  30. Assaf Razin & Alon Binyamini, 2007. "Flattened Inflation-Output Tradeoff and Enhanced Anti-Inflation Policy: Outcome of Globalization?," NBER Working Papers 13280, National Bureau of Economic Research, Inc.
  31. Fabio Milani, 2008. "Learning about the Interdependence between the Macroeconomy and the Stock Market," Working Papers, University of California-Irvine, Department of Economics 070819, University of California-Irvine, Department of Economics.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fabio Milani, 2009. "Has Globalization Transformed U.S. Macroeconomic Dynamics?," Working Papers, University of California-Irvine, Department of Economics 091001, University of California-Irvine, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:irv:wpaper:080920. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jennifer dos Santos).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.