Monetarism....Unplugged?

Globalisation and Inflation: New Cross-Country Evidence on the Global
Determinants of Domestic Inflation

Claudio Borio & Andrew Filardo
Bank for International Settlements Working Paper, September 2007

Abstract:
There has been mounting evidence that the inflation process has been
changing. Inflation is now much lower and much more stable around the globe.
And its sensitivity to measures of economic slack and increases in input
costs appears to have declined. Probably the most widely supported
explanation for this phenomenon is that monetary policy has been much more
effective. There is no doubt in our mind that this explanation goes a long
way towards explaining the better inflation performance we have observed. In
this paper, however, we begin to explore a complementary, rather than
alternative, explanation. We argue that prevailing models of inflation are
too country-centric, in the sense that they fail to take sufficient account
of the role of global factors in influencing the inflation process. The
relevance of a more globe-centric approach is likely to have increased as
the process of integration of the world economy has gathered momentum, a
process commonly referred to as globalisation. In a large cross-section of
countries, we find some rather striking prima facie evidence that this has
indeed been the case. In particular, proxies for global economic slack add
considerable explanatory power to traditional benchmark inflation rate
equations, even allowing for the influence of traditional indicators of
external influences on domestic inflation, such as import and oil prices.
Moreover, the role of such global factors has been growing over time,
especially since the 1990s. And in a number of cases, global factors appear
to have supplanted the role of domestic measures of economic slack.

It may be interesting to think about inflation in (some) other countries as being
externally caused.

But, in the U.S., KPC will continue to insist that inflation is always and everywhere caused by the fact that El Fed no tiene juevos.

(Nod to KL, as always)