International Competition and Inflation: A New Keynesian Perspective

Guerrieri, Luca; Gust, Christopher J.; López‐Salido, J. David

doi:10.1257/mac.2.4.247

Cited by 36 publications

(28 citation statements)

References 34 publications

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“…A second theoretical approach taken by Gust et al (2010) builds on the strategic price complementarily modeled in Kimbal (1995) and Dotsey and King (2005) to analyze the pricing response of domestic and foreign firms to exchange rate shocks. See also Guerrieri et al (2010).…”

Section: Introductionmentioning

confidence: 99%

Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi

Auer¹

2011

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How important is the effect of exchange rate fluctuations on the competitive environment faced by domestic firms and the prices they charge? To answer this question, this paper examines the 17% appreciation of the yuan against the US dollar from 2005 to 2008. In a monthly panel covering 110 sectors, a 1% appreciation of the Yuan increases US import prices by roughly 0.8%. It is then shown that import prices, in turn, pass through into producer prices at an average rate of roughly 0.7, implying that a 1% Yuan appreciation increases the average US producer price of tradable goods by 0.8%*0.7=0.56%. In contrast, exchange rate movements of other trade partners have much smaller effects on import prices and hardly any effect on producer prices. The paper next demonstrates that the pass through response into import prices is heterogeneous across sectors with different characteristics such as traded-input intensity or the shape of demand for the sector's goods. In contrast, the rate at which import prices pass through into domestic producer prices is found to be homogenous across the sectors. Finally, the insights of the analysis are employed to simulate the inflationary effect of a Yuan revaluation. For example, the relative price shock caused by a 25% appreciation of the Yuan spread evenly over 10 months is equivalent to a temporary increase of the US PPI inflation rate by over five percentage points. Because such an appreciation would also influence the overall skewness of the distribution of price changes at the sectoral level, it would likely also impact U.S. equilibrium inflation. JEL codes:

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Section: Introductionmentioning

confidence: 99%

Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi

Auer¹

2011

gwp

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“…Carriero (2008) rejects the cross-equation restrictions that the one-lag NKPC places on a reduced-form VAR in inflation and the labor share. Guerrieri et al (2010) develop a microfounded open-economy NKPC in which the relative price of foreign goods enters. To estimate it they use a multi-equation GMM approach that adds reduced-form VAR equations for the labor share and relative foreign goods prices.…”

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confidence: 99%

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Mavroeidis

Plagborg‐Møller

Stock

2014

Journal of Economic Literature

291

250

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We review the main identification strategies and empirical evidence on the role of expectations in the new Keynesian Phillips curve, paying particular attention to the issue of weak identification. Our goal is to provide a clear understanding of the role of expectations that integrates across the different papers and specifications in the literature. We discuss the properties of the various limited-information econometric methods used in the literature and provide explanations of why they produce conflicting results. Using a common data set and a flexible empirical approach, we find that researchers are faced with substantial specification uncertainty, as different combinations of various a priori reasonable specification choices give rise to a vast set of point estimates. Moreover, given a specification, estimation is subject to considerable sampling uncertainty due to weak identification. We highlight the assumptions that seem to matter most for identification and the configuration of point estimates. We conclude that the literature has reached a limit on how much can be learned about the new Keynesian Phillips curve from aggregate macroeconomic time series. New identification approaches and new data sets are needed to reach an empirical consensus.

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“…The paper is also related to the recent efforts by Sbordone (2007) and Guerrieri et al (2008) to model other channels through which globalization may affect inflation. Sbordone (2007) is mainly interested in analyzing how the increased competition that may be induced by globalization affects the slope of the Phillips curve, i.e.…”

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confidence: 99%

Global slack and domestic inflation rates: A structural investigation for G-7 countries

Milani

2010

Journal of Macroeconomics

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Recent papers have argued that one implication of globalization is that domestic inflation rates may have now become more a function of "global", rather than domestic, economic conditions, as postulated by closed-economy Phillips curves. This paper aims to assess the empirical importance of global output in determining domestic inflation rates by estimating a structural model for a sample of G-7 economies. The model can capture the potential effects of global output fluctuations on both the aggregate supply and the aggregate demand relations in the economy and it is estimated using full-information Bayesian methods. The empirical results reveal a significant effect of global output on aggregate demand in most countries. Through this channel, global economic conditions can indirectly affect inflation. The results, instead, do not seem to provide evidence in favor of altering domestic Phillips curves to include global slack as an additional driving variable for inflation.JEL codes: E31, E50, E52, E58, F41

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International Competition and Inflation: A New Keynesian Perspective

Cited by 36 publications

References 34 publications

Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi

Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/08 Revaluation of the Renminbi

Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve

Global slack and domestic inflation rates: A structural investigation for G-7 countries

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