Another look at global disinflation

BIS Working Papers No 283
May 2009


This paper highlights relative price adjustments taking place in the global economy as important sources of the lower levels of inflation rates observed in the recent decades. Using a markup model, it shows substantial effects from declines in wage costs and import prices relative to consumer prices. Out of the 5 percentage point decline in the inflation rates in eight OECD countries from 1970-1989 to 1990-2006, global shocks to two relative prices account for more than 1.5 percentage points, while a monetary policy shock accounts for another 1 percentage point.

JEL Classification Numbers: E31, F02, F41

Keywords: markup model, open-economy New Keynesian Phillips curve, dynamic factor model, global disinflation