International transmission of inflation under alternative exchange rate regimes: Empirical evidence and its implications |
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| Affiliation: | 1. Molecular Bioprospection Department, CSIR-Central Institute of Medicinal and Aromatic Plants, Lucknow 226015, India;2. Medicinal Chemistry Department, CSIR-Central Institute of Medicinal and Aromatic Plants, Lucknow 226015, India;3. Molecular and Structural Biology Department, CSIR-Central Institute of Medicinal and Aromatic Plants, Lucknow 226015, India;4. Division of Pharmacology, CSIR-Central Drug Research Institute, B.S. 10/1, Sector-10, Jankipuram Extension, Sitapur Road, Lucknow 226031, India;1. ORISE Fellow to the US Department of Energy, United States;2. U.S. Department of Energy, United States;3. Oak Ridge National Lab, United States |
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| Abstract: | This is a study of the transmission pattern of inflation under alternative exchange rate regimes, fixed and flexible, among the Group of Seven (G-7) countries and their subsets, including four members of the European Union (EU) and two countries from North America. Our key empirical findings are as follows. The price levels of several countries that we found move together as a cointegrated system, forming an equilibrium relationship under both fixed and flexible exchange regimes. Second, the speed of adjustment estimates show that the transmission of inflationary disturbances across countries is less pronounced under the flexible exchange rate regime than under the fixed exchange rate regime. Third, the US was found to be the main producer of inflationary innovations among G-7 countries, whereas the UK was found to be the main producer of inflationary innovations among the EU countries, regardless of exchange rate regime. |
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