Global Relative Price Shocks: The Role of Macroeconomic Policies
In: Inflation in an Era of Relative Price Shocks
We use the multi-sector and multi-country G-Cubed model to explore the potential role of three major shocks – to productivity, risk premia and US monetary policy – to explain the large movements in relative prices between 2002 and 2008. We find that productivity shocks were major drivers of relative price movements, while shocks to risk premia and US monetary policy contributed temporarily to some of the relative price dispersions we observe in the data. The effect of US monetary policy shocks on relative prices was most pronounced in countries that fix their currency to the US dollar. Those countries that float were largely shielded from these effects. We conclude that the shocks we consider cannot fully capture the magnitude of the relative price movements over this period, suggesting that other driving forces could also be responsible, including those outside of the model.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: Renée Fry & Callum Jones & Christopher Kent (ed.) Inflation in an Era of Relative Price Shocks, Reserve Bank of Australia, pages , 2010.|
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