Global Slack as a Determinant of U.S. Inflation

Abstract

Resource utilization, or "slack", is widely held to be an important determinant of inflation dynamics.As the world has become more globalized in recent decades, some have argued that the concept of slack that is relevant is global rather than domestic (the "global slack hypothesis").This line of argument is consistent with standard New Keynesian theory.However, the empirical evidence is fragile, at best, possibly because of a disconnect between empirical and theory-consistent measures of output gaps.

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