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Erschienen in: Journal of Economics and Finance 3/2022

02.06.2022

The impact of global economies on US inflation: A test of the Phillips curve

verfasst von: Hany Guirguis, Vaneesha Boney Dutra, Zoe McGreevy

Erschienen in: Journal of Economics and Finance | Ausgabe 3/2022

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Abstract

Understanding the relationship between employment and inflation is of great interest to policymakers and market participants. This paper introduces a new global inflation measure based on the principal component analysis (PCA) of the inflation rates of major US trade partners. We find that US domestic inflation correlates strongly with global inflation in the short- and long term. Moreover, global inflation leads the US inflation and accounts for 80% of the price discovery process. Additionally, we show that the Phillips curve equation improves in-sample and out-of-sample forecasting of US inflation rates by incorporating our spill-over-based global inflation (SGI) measure. Also, the utilization of the SGI in the Phillips equation increases the responsivity of the inflation rate data to the unemployment gap by 37%. In summary, the present results support the hypothesis that global inflation is a crucial determinant of domestic (US) inflation. The paper's main findings draw vital policy implications that emphasize the need for stronger cooperation among central banks to cope with the spill-over effect of global inflations on domestic economies.

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Metadaten
Titel
The impact of global economies on US inflation: A test of the Phillips curve
verfasst von
Hany Guirguis
Vaneesha Boney Dutra
Zoe McGreevy
Publikationsdatum
02.06.2022
Verlag
Springer US
Erschienen in
Journal of Economics and Finance / Ausgabe 3/2022
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-022-09583-x

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