External Shocks and International Inflation Linkages: A Global VAR Analysis

45 Pages Posted: 12 Jun 2009

See all articles by Alessandro Galesi

Alessandro Galesi

idealista

Marco J. Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: June 10, 2009

Abstract

Amid the recent commodity price gyrations, policy makers have become increasingly concerned in assessing to what extent oil and food price shocks transmit to the inflationary outlook and the real economy. In this paper, we try to tackle this issue by means of a Global Vector Autoregressive (GVAR) model. We first examine the short-run inflationary effects of oil and food price shocks on a given set of countries. Secondly, we assess the importance of inflation linkages among countries, by disentangling the geographical sources of inflationary pressures for each region. Generalized impulse response functions reveal that the direct inflationary effects of oil price shocks affect mostly developed countries while less sizeable effects are observed for emerging economies. Food price increases also have significative inflationary direct effects, but especially for emerging economies. Moreover, significant second-round effects are observed in some countries. Generalized forecast error variance decompositions indicate that considerable linkages through which inflationary pressures spill over exist among regions. In addition, a considerable part of the observed headline inflation rises is attributable to foreign sources for the vast majority of the regions.

Keywords: oil shock, commodity prices, inflation, second-round effects, Global VAR

JEL Classification: C32, E31

Suggested Citation

Galesi, Alessandro and Lombardi, Marco Jacopo, External Shocks and International Inflation Linkages: A Global VAR Analysis (June 10, 2009). ECB Working Paper No. 1062, Available at SSRN: https://ssrn.com/abstract=1414192

Alessandro Galesi (Contact Author)

idealista ( email )

Madrid, Madrid 28014
Spain

Marco Jacopo Lombardi

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
+41612809492 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
366
Abstract Views
1,569
rank
102,502
PlumX Metrics