Globalisation and the Decoupling of Inflation from Domestic Labour Costs

Emanuel Kohlscheen and Richhild Moessner

No 9281, CESifo Working Paper Series from CESifo

Abstract: We provide novel systematic cross-country evidence that the link between domestic labour markets and CPI inflation has weakened considerably in advanced economies during recent decades. The central estimate is that the short-run pass-through from domestic labour cost changes to core CPI inflation decreased from 0.25 in the 1980s to just 0.02 in the 2010s, while the longrun pass-through fell from 0.36 to 0.03, with the estimates in the 2010s no longer significant. We show that the timing of the collapse in the pass-through coincides with a steep increase in import penetration from a group of major manufacturing EMEs around the turn of the millennium, which signals increased competition and market contestability.

Keywords: competition; globalisation; import penetration; inflation; labour market; pass-through; wage (search for similar items in EconPapers)
JEL-codes: E31 E50 F10 F60 J30 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-int, nep-isf, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Globalisation and the Decoupling of Inflation from Domestic Labour Costs (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9281

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