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Structural Breaks in the International Transmission of Inflation


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


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.

Suggested Citation

  • Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2009. "Structural Breaks in the International Transmission of Inflation," Centre for Growth and Business Cycle Research Discussion Paper Series 119, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:119

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    References listed on IDEAS

    1. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    2. 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.
    3. Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2014. "Identifying Changes in Mean, Seasonality, Persistence and Volatility for G7 and Euro Area Inflation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(3), pages 360-388, June.
    4. Goncalves, Silvia & Kilian, Lutz, 2004. "Bootstrapping autoregressions with conditional heteroskedasticity of unknown form," Journal of Econometrics, Elsevier, vol. 123(1), pages 89-120, November.
    5. Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
    6. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 851, European Central Bank.
    7. Corvoisier, Sandrine & Mojon, Benoît, 2005. "Breaks in the mean of inflation: how they happen and what to do with them," Working Paper Series 451, European Central Bank.
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    Cited by:

    1. Erdenebat Bataa & Denise R. Osborn & Marianne Sensier & Dick van Dijk, 2009. "Changes in International Business Cycle Affiliations," The School of Economics Discussion Paper Series 0924, Economics, The University of Manchester.
    2. Peter Dolton & Li Lin, 2011. "From Grants to Loans and Fees: The Demand for Post-Compulsory Education in England and Wales from 1955 to 2008," CEE Discussion Papers 0127, Centre for the Economics of Education, LSE.

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