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The Timing of Monetary and Price Changes and the International Transmission of Inflation

36 Pages Posted: 23 Mar 2001  

Antonio Cassese

University of Florence

James R. Lothian

Gabelli School of Business, Fordham University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1980

Abstract

This paper presents a theoretical and empirical investigation into timing relationships between variables within and across industrialized countries. In the analysis we highlight the two polar cases of completely closed and open economies and draw some implications for timing between monetary expansion and inflation, inter-country comparisons of inflation rates and interest rates, and comparisons of central bank behavior. The Granger-causality test is applied in a bivariate fashion to these groups of variables. The main empirical results of our analysis are: (1) Domestic monetary expansion appears to lead inflation in the sense that money Granger-causes prices without feedback, contradicting an implication of the monetary approach to the balance of payments. (2) Hardly any significant timing relationship exists between domestic and foreign rates of inflation during the fixed exchange rate period, providing no evidence for a generalized "law of one price." (3) Some sterilization of official reserve inflows was successfully performed by the non-reserve central banks, except for Canada. (4) U.S. interest rates Granger-cause foreign rates, providing evidence of some international transmission via asset markets.

Suggested Citation

Cassese, Antonio and Lothian, James R., The Timing of Monetary and Price Changes and the International Transmission of Inflation (September 1980). NBER Working Paper No. w0549. Available at SSRN: https://ssrn.com/abstract=264382

Antonio Cassese (Contact Author)

University of Florence ( email )

Piazza di San Marco, 4
Florence, 50121
Italy

James R. Lothian

Gabelli School of Business, Fordham University ( email )

113 West 60th Street
New York, NY 10023
United States
212-636-6147 (Phone)
212-765-5573 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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