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Do global factors spell the end of the Phillips Curve?

Author

Listed:
  • Eric McCoy
  • Matteo Salto
  • Václav Žďárek

Abstract

This chapter presents evidence that the determinants of domestic inflation present in the traditional Phillips curve framework remain relevant, while quantity-based measures of global shocks are not relevant. While global price shocks mainly related to oil and commodities are significant determinants of domestic inflation, domestic variables remain as significant as ever. These results are relevant as part of the debate on conducting monetary policy. The paper argues that the use of the Phillips curve in the current inflation-targeting framework is still relevant and that any argument against it cannot rely on inflation being determined by global factors.

Suggested Citation

  • Eric McCoy & Matteo Salto & Václav Žďárek, 2019. "Do global factors spell the end of the Phillips Curve?," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 18(1), pages 23-36, July.
    • Handle: RePEc:euf:qreuro:0181-02
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