A Global Perspective on Inflation and Propagation Channels
42 Pages Posted: 29 Aug 2012
Date Written: August 13, 2012
This paper revisits the evidence on the monetary policy transmission channels. It extends the existing literature along three lines: it takes a global perspective with aggregate series based on a broader set of countries (ca 70% per cent of the global economy) and a longer time (1960-2010) than previous studies. It, thereby, internalizes potential international transmission channels (i.e. via global commodity prices); it examines the interaction between monetary variables, asset prices (notably residential property) and inflation; and it looks at the role of public debt for consumer price developments. On the basis of a VAR analysis, the study finds that i) global money demand shocks affect global inflation and also global commodity prices, which in turn impact on inflation; global asset/property price dynamics appear to respond to financing cost shocks, but not to shocks to global money demand. Moreover, positive house price shocks exert a significant influence on inflation. From a global perspective, the study suggests recognition of global externalities of commodities and asset values as well as the close monitoring of real estate price developments.
Keywords: VAR, global inflation, global house prices, global money
JEL Classification: E31, E51, E62, C32, F42
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