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International linkage of inflation rates in a dynamic general equilibrium

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  • Atsumasa Kondo
  • Koji Kitaura

Abstract

This paper uses the Neumeyer–Yano’s monetary dynamic general equilibrium model to investigate the inter-connectivity of the world economy through bond holding beyond national borders. The possibility that unexpected inflation in one country transmits to another is demonstrated within a framework in which the nominal exchange rate is flexibly determined so that the purchasing power parity holds. Deflation can also be imported through the same channel. Whether inflation or deflation diffuses internationally depends on the level of fiscal deficit. Although a country may suffer from monetary disturbances from abroad, each country can completely defend itself by implementing appropriate fiscal policies. Copyright Springer-Verlag 2012

Suggested Citation

  • Atsumasa Kondo & Koji Kitaura, 2012. "International linkage of inflation rates in a dynamic general equilibrium," Journal of Economics, Springer, vol. 107(2), pages 141-155, October.
    • Handle: RePEc:kap:jeczfn:v:107:y:2012:i:2:p:141-155
    DOI: 10.1007/s00712-011-0256-2
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    More about this item

    Keywords

    International transmission of inflation; Dynamic general equilibrium; No-Ponzi-Game condition; Monetary policy; Fiscal policy; E31; E62; F34;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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