International Transmission of Inflation Among G-7 Countries: A Data-Determined VAR Analysis
37 Pages Posted: 29 Jul 2005
We investigate the international transmission of inflation among G-7 countries using a data-determined vector autoregression analysis, as advocated by Swanson and Granger (1997). Over the period 1973 to 2003, we find that U.S. innovations have a large effect on inflation in the other countries, although they are not always the dominant international factor. Similarly, shocks to some other countries also have a statistically and economically significant influence on U.S. inflation. Moreover, our evidence indicates that U.S. inflation has become less vulnerable to foreign shocks since the early 1990s, mainly because of the diminished influence from Germany and France.
Keywords: Inflation transmission, directed acyclic graphs, forecast error variance decomposition, recursive estimation, impulse responses
JEL Classification: G15, C32
Suggested Citation: Suggested Citation