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Structural Breaks in the International Transmission of Inflation

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  • Erdenebat Bataa
  • Denise R. Osborn
  • Marianne Sensier
  • Dick van Dijk

Abstract

To shed light on changes in international inflation, this paper proposes an iterative procedure to discriminate between structural breaks in the coefficients and the disturbance covariance matrix of a system of equations, allowing these components to change at different dates. Conditional on these, recursive procedures are proposed to analyze the nature of change, including tests to identify individual coefficient shifts and to discriminate between volatility and correlation breaks. Using these procedures, structural breaks in monthly cross-country inflation relationships are examined for major G-7 countries (US, Euro area, UK and Canada) and within the Euro area (France, Germany and Italy). Overall, we find few dynamic spillovers between countries, although the Euro area leads inflation in North America, while Germany leads France. Contemporaneous inflation correlations are generally low in the 1970s and early 1980s, but inter-continental correlations increase from the end of the 1990s, while Euro area countries move from essentially idiosyncratic inflation to co-movement in the mid-1980s.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr119.pdf
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Bibliographic Info

Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 119.

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Length: 39 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:man:cgbcrp:119

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