International Transmission of Inflation Among G-7 Countries: A Data-Determined VAR Analysis

37 Pages Posted: 29 Jul 2005

See all articles by Jian Yang

Jian Yang

University of Colorado at Denver - Business School

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Zijun Wang

Texas A&M University

Abstract

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

Yang, Jian and Guo, Hui and Wang, Zijun, International Transmission of Inflation Among G-7 Countries: A Data-Determined VAR Analysis. Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=762545

Jian Yang

University of Colorado at Denver - Business School ( email )

1250 14th St.
Denver, CO 80204
United States

Hui Guo (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)

HOME PAGE: http://homepages.uc.edu/~guohu/

Zijun Wang

Texas A&M University ( email )

Langford Building A
798 Ross St.
College Station, TX 77843-3137
United States

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