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Global stochastic trends in growth, interest and inflation. Is the post-Bretton-Woods era driven by the Volcker disinflation?

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  • Reinhold Heinlein

    ()

  • Hans-Martin Krolzig

    ()

Abstract

This note aims to identify the stable long-run relationships as well as unstable driving forces of the world economy using an aggregated approach involving the four largest currency blocks. The small global macromodel encompasses aggregated quarterly US, UK, Japanese and Euro Area data for the post-Bretton-Woods era. Three stable long-run relationships are found: output growth, the global term spread and an inflation climate measure. The common stochastic trend of the global economy is found to be dominated by real short-term interest rate shocks, reflecting the strong increase of the global real rates during the Volcker disinflation period as a dominating event of the last 40 years of macro history.

Suggested Citation

  • Reinhold Heinlein & Hans-Martin Krolzig, 2013. "Global stochastic trends in growth, interest and inflation. Is the post-Bretton-Woods era driven by the Volcker disinflation?," Studies in Economics 1322, School of Economics, University of Kent.
  • Handle: RePEc:ukc:ukcedp:1322
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    References listed on IDEAS

    as
    1. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    2. Bjørnland, Hilde C., 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Journal of International Economics, Elsevier, vol. 79(1), pages 64-77, September.
    3. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2012. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199650460.
    4. Scholl, Almuth & Uhlig, Harald, 2008. "New evidence on the puzzles: Results from agnostic identification on monetary policy and exchange rates," Journal of International Economics, Elsevier, vol. 76(1), pages 1-13, September.
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    More about this item

    Keywords

    Cointegration; Real interest rates; Volcker disinflation; Multi-country model; Divisia index;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access

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