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Structural Breaks in the International Transmission of Inflation

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Author Info
Erdenebat Bataa
Denise R. Osborn
Marianne Sensier
Dick van Dijk

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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/cgbcr/dpcgbcr/dpcgbcr119.pdf
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Publisher 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
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Handle: RePEc:man:cgbcrp:119

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  1. Zhongjun Qu & Pierre Perron, 2007. "Estimating and Testing Structural Changes in Multivariate Regressions," Econometrica, Econometric Society, vol. 75(2), pages 459-502, 03. [Downloadable!] (restricted)
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  2. Filippo Altissimo & Laurent Bilke & Andrew Levin & Thomas Mathä & Benoit Mojon, 2006. "Sectoral and Aggregate Inflation Dynamics in the Euro Area," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 585-593, 04-05. [Downloadable!] (restricted)
  3. Halunga, Andreea G. & Osborn, Denise R. & Sensier, Marianne, 2009. "Changes in the order of integration of US and UK inflation," Economics Letters, Elsevier, vol. 102(1), pages 30-32, January. [Downloadable!] (restricted)
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  4. Serena Ng & Timothy Vogelsang, 2002. "Analysis Of Vector Autoregressions In The Presence Of Shifts In Mean," Econometric Reviews, Taylor and Francis Journals, vol. 21(3), pages 353-381. [Downloadable!] (restricted)
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  5. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November. [Downloadable!] (restricted)
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  6. Andrew T. Levin & Jeremy M. Piger, 2004. "Is inflation persistence intrinsic in industrial economies?," Working Paper Series 334, European Central Bank. [Downloadable!]
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  7. Luca Benati, 2008. "Investigating Inflation Persistence Across Monetary Regimes," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1005-1060, August. [Downloadable!] (restricted)
  8. Marianne Sensier & Dick van Dijk, 2004. "Testing for Volatility Changes in U.S. Macroeconomic Time Series," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 833-839, 08. [Downloadable!] (restricted)
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  9. Jean-Yves Pitarakis, 2004. "Least squares estimation and tests of breaks in mean and variance under misspecification," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 32-54, 06. [Downloadable!] (restricted)
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  10. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
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  11. Luca Benati, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 851, European Central Bank. [Downloadable!]
  12. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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  13. Tommaso Monacelli & Luca Sala, 2009. "The International Dimension of Inflation: Evidence from Disaggregated Consumer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 101-120, 02. [Downloadable!] (restricted)
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