The nature of trade, global production fragmentation and inflationary dynamics: Cross‐country evidence

This study investigates under which circumstances trade has impact on inflation dynamics by examining the independent effects of trade intensity, intra‐industry trade and trade on value added. Trade in goods is decomposed into consumption (final) goods and intermediate inputs to deepen the assessmen...

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Bibliographic Details
Published in:World economy 2020-07, Vol.43 (7), p.2007-2031
Main Author: Saygılı, Hülya
Format: Article
Language:English
Subjects:
Economic analysis
Global economy
Globalization
Inflation
inflation dynamics
International trade
Keynesian theory
nature of trade
new Keynesian Phillips curve
Phillips curve
Production
production fragmentation
Segmentation
trade in final goods
trade in intermediate inputs
Value added
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Summary:This study investigates under which circumstances trade has impact on inflation dynamics by examining the independent effects of trade intensity, intra‐industry trade and trade on value added. Trade in goods is decomposed into consumption (final) goods and intermediate inputs to deepen the assessment of the role of the globalisation of production activities on inflation dynamics. Open‐economy new Keynesian Phillips curve (NKPC) analyses suggest that inflation is sensitive to domestic factors and that the relevance of external factors changes with respect to the nature of trade, country groups and time. Vertical intra‐industry trade in intermediate inputs and value‐added trade play important role, whereas final goods trade has no statistically significant effect on inflation dynamics.
ISSN:0378-5920
1467-9701
DOI:10.1111/twec.12925