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The role of foreign slack in domestic inflation in the Eurozone

Nickel, Christiane, (2017), “The role of foreign slack in domestic inflation in the Eurozone”, VoxEU, 28 July

The past decade has seen a growing role for global slack in Phillips curve approaches, as opposed to the traditional focus on domestic slack. This column explores whether augmenting Phillips curves by measures of foreign slack can help to better explain past developments in underlying inflation. A majority of specifications, both with and without foreign slack, are found to yield very similar results. Even for periods when domestic slack differed substantially from foreign slack, like between 2012 and 2016, the effects seem to be rather small.

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