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Globalisation, import prices and inflation dynamics

Author

Listed:
  • Chris Peacock

    (Bank of England)

  • Ursel Baumann

    (European Central Bank)

Abstract

In this paper we model the role of open-economy effects within a New Keynesian Phillips Curve (NKPC) via the inclusion of intermediate imports in firms' production technology. Using this framework we provide evidence on two questions: first, does the inclusion of import prices help explain post-war inflation dynamics in the United Kingdom , United States and Japan; and second, has the influence of import prices in firms' costs become greater over the more recent period since the mid-1980s. Overall, our results suggest that import prices do help explain movements in inflation; in particular, NKPC models that allow for import prices to enter into firms' costs outperform closed-economy models in sample. However, our results suggest that the influence of import prices has generally remained constant across our sample period, with perhaps only the United Kingdom providing some evidence that import prices have become more important in firms' marginal costs.

Suggested Citation

  • Chris Peacock & Ursel Baumann, 2008. "Globalisation, import prices and inflation dynamics," Bank of England working papers 359, Bank of England.
    • Handle: RePEc:boe:boeewp:0359
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    References listed on IDEAS

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    Cited by:

    1. Gantungalag Altansukh & Ralf Becker & George Bratsiotis & Denise R. Osborn, 2018. "Structural Breaks in International Inflation Linkages for OECD Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 240, Economics, The University of Manchester.
    2. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España.

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    Keywords

    Globalisation; inflation dynamics; import prices; New Keynesian Phillips Curves;
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