U.K. Inflation and Relative Prices Over the Last Decade: How Important was Globalization?, Issues 2007-2208
In this paper, the IMF's new Global Economy Model (GEM) is used to estimate the relative importance of a number of factors argued to explain the differences in the trends in core inflation and relative prices in the United Kingdom, the Euro Area and the United States. The simulation results indicate that while the direct effect of globalization has had a larger effect in the United Kingdom than in either the United States or the Euro Area, it explains only a portion of the developments and U.K. specific factors played an important role.
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An Overview of The Global Economic Model
The 3Year Ahead Acceleration in GDP Growth in Emerging Asia
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25 percent agents learn Area Emerging Asia calibrated Core CPl lnflation demand for nontradables deviation from baseline direct effect distribution efficiency distribution sector efficiency downward pressure effect of globalization Effective Exchange Rate efficiency gains estimates Euro Area Emerging faster productivity growth faster tradable sector GDP Relative Price households imports from emerging increase in U.K. industrial countries inflation and relative interest rates Kalman filter Labor Productivity larger impact last decade markups Nominal lnterest Rate nontradable final nontradables in GDP nontradables sectors percent or percentage percentage point deviation percentage point increase price of nontradables price of services rational expectations real effective exchange Real GDP Relative sector productivity growth service price inflation share of nontradables Short-term Nominal lnterest simulation analysis sterling appreciation temporary components tradable intermediate tradable sector productivity tradables and nontradables U.K. U.S. Euro area U.K. assets U.K. Distribution U.K. GDP U.K. relative price U.K. specific factors U.S. dollar wealth effect