External Competition Flattens the Phillips Curve

  1. Alfonso Camba Crespo
  2. José García Solanes
  3. Fernando Torrejón Flores
Revista:
Revista de economía mundial

ISSN: 1576-0162

Año de publicación: 2022

Número: 60

Páginas: 295-327

Tipo: Artículo

DIALNET GOOGLE SCHOLAR lock_openArias Montano editor

Otras publicaciones en: Revista de economía mundial

Resumen

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 exchangerate 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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