Is Inflation Domestic or Global? Evidence from Emerging Markets

By Rudolfs Bems, Francesca Caselli, Francesco Grigoli, Bertrand Gruss, Weicheng Lian

November 8, 2018

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Rudolfs Bems, Francesca Caselli, Francesco Grigoli, Bertrand Gruss, and Weicheng Lian. Is Inflation Domestic or Global? Evidence from Emerging Markets, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Following a period of disinflation during the 1990s and early 2000s, inflation in emerging markets has remained remarkably low and stable. Was this related to a global disinflation environment triggered by China's integration into world trade and the broader globalization in these economies, or to better domestic policies? In this paper, we review the inflation performance in a sample of 19 large emerging markets in the past couple of decades and quantify the impact of domestic and global factors in determining inflation. We document that the level, volatility, and persistence of inflation declined significantly, albeit not uniformly. Our results suggest that longer-term inflation expectations, linked to domestic factors, were the main determinant of inflation. External factors played a considerably smaller role. The results are a useful piece of evidence as emerging markets craft their monetary policies to navigate the future shift in global financial conditions.

Subject: Emerging and frontier financial markets, Financial markets, Food prices, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production

Keywords: Emerging and frontier financial markets, Emerging markets, Food prices, Global, Globalization, Headline inflation dynamics, Inflation, Inflation dynamics, Inflation expectation, Inflation expectations, Inflation targeting, Output gap, Phillips Curve, Price inflation, Price pressure, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/241
Stock No:

WPIEA2018241
ISBN:

9781484381595
ISSN:

1018-5941

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