Inflation Dynamics and Global Value Chains
The global economy has witnessed a decline in inflation and an increase in inflation synchronization since the early 1980s. This paper investigates the relationship between inflation synchronization and trade integration, and documents the...
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| Language: | English |
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/770701576684627744/Inflation-Dynamics-and-Global-Value-Chains http://hdl.handle.net/10986/33059 |
| Summary: | The global economy has witnessed a
decline in inflation and an increase in inflation
synchronization since the early 1980s. This paper
investigates the relationship between inflation
synchronization and trade integration, and documents the
strong link between inflation co-movement and Global Value
Chain (GVC) participation. Using 35 years and both gross and
value-added trade flows, evidence shows that an increase in
production linkages, as proxied by trade in intermediate
inputs, is strongly associated with higher inflation
correlation. Moreover, backward GVC participation is
associated with an increase in bilateral inflation
co-movement while forward participation is linked with a
higher correlation between domestic and worldwide inflation.
The paper also finds evidence of the effect of trade
integration in decreasing inflation levels. |
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