U.K. Inflation and Relative Prices over the Last Decade: How Important was Globalization?
IMF Working Papers, August 1, 2007
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- U.K. Inflation and Relative Prices over the Last Decade: How Important was Globalization?
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Bibliographic details
- Authors: Benjamin L Hunt
- Published: August 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867725.001
Main findings and analysis
- The IMF's Global Economy Model (GEM) is used to estimate the relative importance of factors explaining differences in trends in core inflation and relative prices across the United Kingdom, the Euro Area, and the United States.
- Simulation results indicate that the direct effect of globalization had a larger effect in the United Kingdom than in either the United States or the Euro Area.
- Globalization explains only a portion of the observed developments in U.K. core inflation and relative prices.
- U.K.-specific factors played an important role in shaping the U.K. inflation and relative price outcomes.
Methodology
- Tool: IMF Global Economy Model (GEM).
- Approach: Simulation-based decomposition to attribute differences in trends in core inflation and relative prices to globalization versus other factors.
Policy-relevant implications
- Because globalization explains only part of U.K. developments, domestic (U.K.-specific) factors warrant careful analysis and policy consideration when addressing core inflation and relative price dynamics.
- Policymakers should not rely solely on global forces (globalization) to account for or manage U.K. inflation outcomes; targeted domestic policies may be necessary.
Subject and keywords
- Subject: Exchange rates, Imports, Inflation, Productivity, Real effective exchange rates
- Keywords: nontradable goods, relative price, service price inflation, U.K. consumption bundle, U.K. distribution, U.K. economy, WP