External competition flattens the Phillips Curve
In this paper we elaborate an open economy Phillips curve (OEPC) with micro-founded analysis, in which external competition significantly impacts the domestic inflation rate. This influence is transmitted through two channels: a) the gap between the current and potential growth of imports, and b) r...
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| Format: | Article |
| Language: | English |
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Universidad de Huelva
2022-04-01
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| Series: | Revista de Economía Mundial |
| Subjects: | |
| Online Access: | https://www.uhu.es/publicaciones/ojs/index.php/REM/article/view/4962 |
| _version_ | 1797267327600820224 |
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| author | Alfonso Camba Crespo José García Solanes Fernando Torrejón Flores |
| author_facet | Alfonso Camba Crespo José García Solanes Fernando Torrejón Flores |
| author_sort | Alfonso Camba Crespo |
| collection | DOAJ |
| description |
In this paper we elaborate an open economy Phillips curve (OEPC) with micro-founded analysis, in which external competition significantly impacts the domestic inflation rate. This influence is transmitted through two channels: a) the gap between the current and potential growth of imports, and b) real exchange-rate misalignment. We estimate this OEPC by applying two econometric techniques, panel regressions and PVAR accompanied by impulse/response analysis. A sample of 15 advanced economies is used with data for the period 1994-2017. The results from both methodologies endorse the validity of this theoretical relationship and suggest that international competition reduces the pricing power of domestic firms, thereby curbing inflationary pressures. We also find that the slope of the OEPC has significantly declined in the years after the Great Recession.
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| first_indexed | 2024-04-25T01:14:50Z |
| format | Article |
| id | doaj.art-7884d835eb5a4207a5f6bdfb93d212b7 |
| institution | Directory Open Access Journal |
| issn | 1576-0162 2340-4264 |
| language | English |
| last_indexed | 2024-04-25T01:14:50Z |
| publishDate | 2022-04-01 |
| publisher | Universidad de Huelva |
| record_format | Article |
| series | Revista de Economía Mundial |
| spelling | doaj.art-7884d835eb5a4207a5f6bdfb93d212b72024-03-09T11:48:59ZengUniversidad de HuelvaRevista de Economía Mundial1576-01622340-42642022-04-016010.33776/rem.v0i60.4962External competition flattens the Phillips CurveAlfonso Camba Crespo0José García Solanes1Fernando Torrejón Flores2Universidad Nacional de Educación a DistanciaUniversidad de MurciaUniversidad de Murcia In this paper we elaborate an open economy Phillips curve (OEPC) with micro-founded analysis, in which external competition significantly impacts the domestic inflation rate. This influence is transmitted through two channels: a) the gap between the current and potential growth of imports, and b) real exchange-rate misalignment. We estimate this OEPC by applying two econometric techniques, panel regressions and PVAR accompanied by impulse/response analysis. A sample of 15 advanced economies is used with data for the period 1994-2017. The results from both methodologies endorse the validity of this theoretical relationship and suggest that international competition reduces the pricing power of domestic firms, thereby curbing inflationary pressures. We also find that the slope of the OEPC has significantly declined in the years after the Great Recession. https://www.uhu.es/publicaciones/ojs/index.php/REM/article/view/4962Open economy Phillips curveRER misalignmentCross-sectional dependencePVARimpulse/response analysis. |
| spellingShingle | Alfonso Camba Crespo José García Solanes Fernando Torrejón Flores External competition flattens the Phillips Curve Revista de Economía Mundial Open economy Phillips curve RER misalignment Cross-sectional dependence PVAR impulse/response analysis. |
| title | External competition flattens the Phillips Curve |
| title_full | External competition flattens the Phillips Curve |
| title_fullStr | External competition flattens the Phillips Curve |
| title_full_unstemmed | External competition flattens the Phillips Curve |
| title_short | External competition flattens the Phillips Curve |
| title_sort | external competition flattens the phillips curve |
| topic | Open economy Phillips curve RER misalignment Cross-sectional dependence PVAR impulse/response analysis. |
| url | https://www.uhu.es/publicaciones/ojs/index.php/REM/article/view/4962 |
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