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Globalisation, domestic inflation and global output gaps: Evidence from the euro area

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  • Calza, Alessandro

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. JEL Classification: E3, F4

Suggested Citation

  • Calza, Alessandro, 2008. "Globalisation, domestic inflation and global output gaps: Evidence from the euro area," Working Paper Series 890, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2008890
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    Cited by:

    1. Özer Karagedikli & Haroon Mumtaz & Misa Tanaka, 2010. "All together now: Do international factors explain relative price co-movements?," Reserve Bank of New Zealand Discussion Paper Series DP2010/02, Reserve Bank of New Zealand.
    2. 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.
    3. Milani, Fabio, 2010. "Global slack and domestic inflation rates: A structural investigation for G-7 countries," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 968-981, December.
    4. Calista Cheung, 2009. "Are Commodity Prices Useful Leading Indicators of Inflation?," Discussion Papers 09-5, Bank of Canada.
    5. 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.
    6. Jordi Galí, 2010. "Commentary: Inflation Pressures and Monetary Policy in a Global Economy," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 93-102, March.
    7. Robert Anderton & Alessandro Galesi & Marco Lombardi & Filippo di Mauro, 2010. "Key Elements of Global Inflation," RBA Annual Conference Volume,in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
    8. Sandra Eickmeier & Katharina Pijnenburg, 2013. "The Global Dimension of Inflation – Evidence from Factor-Augmented Phillips Curves," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(1), pages 103-122, February.
    9. Robert Anderton & Paul Hiebert, 2009. "The Impact of Globalisation on the Euro Area Macroeconomy," Discussion Papers 09/14, University of Nottingham, GEP.

    More about this item

    Keywords

    globalisation; global output gap; inflation;

    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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