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In this seminar, Benjamin Wong develops a model to empirically study the influence of foreign shocks in driving trend inflation and the inflation gap. He first applies his model to Australia, Canada, New Zealand, Norway, and Sweden, five advanced inflation targeting small open economies. A broad summary of his results suggest that while foreign shocks can have a sizeable influence on the inflation gap, they play a more marginal role in driving trend inflation. The author also finds that much of the influence of foreign shocks in the inflation gap may be reflecting commodity price shocks. Wong’s conclusions are further validated by extending his study to a more heterogeneous group of Asian economies. In sum, his results are consistent with the idea that while foreign shocks may have a short to medium run impact on inflation deviating from its long- run level, long-run or trend inflation is ultimately a monetary phenomenon largely determined by domestic monetary policy.
Benjamin Wong is an Economist at the Reserve Bank of New Zealand. He has research interests in time series econometrics and the interaction of commodity prices with the macroeconomy. He has also served as central bank research fellow at the Bank for International Settlements and is also co-director of the Model Uncertainty and Macroeconometrics program at CAMA. Ben holds a PhD from the Australian National University and his key publications can be found in the Review of Economics and Statistics and the Journal of Money, Credit and Banking.
The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.