Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161826
Authors: 
Auer, Raphael A.
Borio, Claudio
Filardo, Andrew
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6387
Abstract: 
Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional trade-based measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.
Subjects: 
globalization
inflation
Phillips curve
monetary policy
global value chain
production structure
international inflation synchronisation
input-output linkages
supply chain
JEL: 
E31
E52
E58
F02
F41
F42
F14
F62
Document Type: 
Working Paper

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