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Is Inflation Domestic or Global? Evidence from Emerging Markets

Author

Listed:
  • Rudolfs Bems

    (International Monetary Fund)

  • Francesca Caselli

    (International Monetary Fund)

  • Francesco Grigoli

    (International Monetary Fund)

  • Bertrand Gruss

    (International Monetary Fund)

Abstract

Following a period of disinflation during the 1990s and early 2000s, inflation in emerging markets has remained remarkably low. The volatility and persistence of inflation also fell considerably and remained low despite large swings in commodity prices, the global financial crisis, and periods of strong and sustained U.S. dollar appreciation. A key question is whether this improved inflation performance is sustainable or reflects global disinflationary forces that could prove temporary. In this paper, we use a New Keynesian Phillips-curve framework and data for 19 large emerging market economies over 2004–18 to assess the contribution of domestic and global factors to domestic inflation dynamics. We find that long-term inflation expectations, linked to domestic factors, were the main determinant of inflation. External factors played a considerably smaller role. The results suggest that although emerging markets are increasingly integrated into the global economy, policymakers still hold significant leverage in domestic inflation developments.

Suggested Citation

  • Rudolfs Bems & Francesca Caselli & Francesco Grigoli & Bertrand Gruss, 2022. "Is Inflation Domestic or Global? Evidence from Emerging Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:4:a:4
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    References listed on IDEAS

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    Cited by:

    1. David Finck & Peter Tillmann, 2022. "The Role of Global and Domestic Shocks for Inflation Dynamics: Evidence from Asia," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(5), pages 1181-1208, October.
    2. Martin Stojanovikj & Goran Petrevski, 2024. "Inflation targeting and disinflation costs in Emerging Market economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 283-312, February.
    3. Maurice Obstfeld, 2020. "Harry Johnson's “Case for flexible exchange rates”—50 years later," Manchester School, University of Manchester, vol. 88(S1), pages 86-113, September.
    4. Prakarti Sharma & Nidhi Sharma, 2022. "An Examination of Per Capita Income Convergence in Emerging Market Economies," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(3), pages 319-347, September.
    5. Lahlou, Kamal & Bennouna , Hicham, 2022. "Contributions des facteurs domestiques et externes à la dynamique de l’inflation au Maroc," Document de travail 2022-1, Bank Al-Maghrib, Département de la Recherche.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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