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BPEA Article

Inflation dynamics: Dead, dormant, or determined abroad?

Editor's Note:

This paper is part of the Fall 2019 edition of the Brookings Papers on Economic Activity, the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. Research findings are presented in a clear and accessible style to maximize their impact on economic understanding and policymaking. The editors are Brookings Nonresident Senior Fellow and Northwestern University Professor of Economics Janice Eberly and Brookings Nonresident Senior Fellow and Harvard University Professor of Economics James Stock. Read summaries of all six papers from the journal here.

Summary

Kristin Forbes explores whether growing globalization has played a role in inflation over the last decade, finding that its role in determining CPI inflation dynamics has increased since the financial crisis. Forbes argues that a better treatment of globalization in inflation models will help improve forecasts and could help explain the growing wedge between profits and the labor share. Overall, however, while CPI inflation is increasingly “determined abroad”, core and wage inflation is still largely a domestic process.

Citation

Forbes, Kristin J. 2019. “Inflation dynamics: Dead, dormant, or determined abroad?” BPEA Conference Draft, Fall.

Conflict of Interest Disclosure

The author is ­­­­the Jerome and Dorothy Lemelson Professor of Management and Global Economics at the Sloan School of Management at the Massachusetts Institute of Technology. Beyond these affiliations, over the last two years the author has received payment for speeches or consulting work with: the asset management firm Citadel, the Government of Iceland, J.P. Morgan, and State Street. She is currently not an officer, director, or board member of any organization with an interest in this paper. No outside party had the right to review this paper before circulation. The views expressed in this paper are those of the author, and do not necessarily reflect those of the Sloan School of Management or the Massachusetts Institute of Technology.

Author

Kristin J. Forbes

Jerome and Dorothy Lemelson Professor of Management, Professor of Global Economics and Management - MIT-Sloan School of Management

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