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How Does Trade Impact the Way GDP Growth and Inflation Comove Across Countries?

Author

Listed:
  • Paul Ho
  • Pierre-Daniel G. Sarte
  • Felipe Schwartzman

Abstract

Seemingly small international trade linkages can lead to substantial spillovers across countries, going a long way in explaining the well-documented global comovement in GDP growth and inflation across countries. The spillovers come largely from indirect effects, with shocks in a foreign country not only propagating to the domestic economy directly but also cumulating through the trade network via other foreign countries. We develop and estimate a model incorporating these network effects, and we find that inflationary shocks in Europe have substantial effects on U.S. inflation and that U.S. monetary policy has a sizeable impact on foreign economies.

Suggested Citation

  • Paul Ho & Pierre-Daniel G. Sarte & Felipe Schwartzman, 2023. "How Does Trade Impact the Way GDP Growth and Inflation Comove Across Countries?," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 23(1), January.
    • Handle: RePEc:fip:fedreb:95430
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