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Cross-country connectedness in inflation and unemployment: measurement and macroeconomic consequences

Author

Listed:
  • Binh Thai Pham

    (University of Economics Ho Chi Minh City)

  • Hector Sala

    (Universitat Autònoma de Barcelona
    Institute for the Study of Labor (IZA))

Abstract

We bring the notion of connectedness (Diebold and Yilmaz, Int J Forecast 28(1):57–66 2012) to a set of two critical macroeconomic variables as inflation and unemployment. We focus on the G7 economies plus Spain, and use monthly data—high-frequency data in a macro setting—to explore the extent and consequences of total and directional volatility spillovers across variables and countries. We find that total connectedness is larger for prices (58.28%) than for unemployment (41.81%). We also identify asymmetries per country that result in higher short-run Phillips curve trade-offs in recessions and lower trade-offs in expansions. Besides, by exploring time-varying connectedness (resulting from country-specific shocks), we find that volatility spillovers magnify in periods of common economic turmoil such as the Global Financial Crisis. Our results call for an enhancement of international macroeconomic policy coordination.

Suggested Citation

  • Binh Thai Pham & Hector Sala, 2022. "Cross-country connectedness in inflation and unemployment: measurement and macroeconomic consequences," Empirical Economics, Springer, vol. 62(3), pages 1123-1146, March.
    • Handle: RePEc:spr:empeco:v:62:y:2022:i:3:d:10.1007_s00181-021-02052-0
    DOI: 10.1007/s00181-021-02052-0
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    Cited by:

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    2. Elie Bouri & David Gabauer & Rangan Gupta & Harald Kinateder, 2023. "Geopolitical Risk and Inflation Spillovers across European and North American Economies," Working Papers 202304, University of Pretoria, Department of Economics.
    3. Daryoosh Borzuei & Seyed Farhan Moosavian & Abolfazl Ahmadi, 2022. "Investigating the dependence of energy prices and economic growth rates with emphasis on the development of renewable energy for sustainable development in Iran," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 848-854, October.
    4. Valery V. Bezpalov & Sergey A. Lochan & Dmitry V. Fedyunin & Irina V. Polozhentseva & Tatiana V. Gorina, 2022. "Relationship between Complex Integration Indices and Inflation Indicators and Their Impact on the Development of Regional Cooperation between Countries to Reduce the Level of Inflationary Risks: Case ," Risks, MDPI, vol. 11(1), pages 1-26, December.
    5. Matos, Paulo Rogério Faustino & Pinheiro Jr, Raimundo & Costa, Antonio, 2023. "A Note on the Brazilian cross-state debt connectedness," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 76(3), February.

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    More about this item

    Keywords

    Country-specific shocks; Connectedness; Philips curve; G7; Common shocks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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