International transmission of inflation among G-7 countries: A data-determined VAR analysis |
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| Institution: | 1. Department of Accounting, Finance and MIS, Prairie View A&M University, Prairie View, TX 77446, USA;2. School of Economics, Nankai University, Tianjin 300071, PR China;3. Research Division, Federal Reserve Bank of St. Louis, 411 Locust Street, P.O. Box 442, St. Louis, MO 63166, USA;4. Private Enterprise Research Center, Texas A&M University, College Station, TX 77843, USA;1. Institute of Economic Studies, Charles University, Opletalova 26, 110 00 Prague, Czech Republic;2. Czech National Bank, Na P?íkopě 28, 115 03 Prague, Czech Republic;3. CESifo, Munich, Germany;4. IOS, Regensburg, Germany |
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| Abstract: | We investigate the international transmission of inflation among G-7 countries using data-determined vector autoregression analysis, as advocated by Swanson and Granger Swanson, N., Granger, C., 1997. Impulse response functions based on a causal approach to residual orthogonalization in vector autoregressions. Journal of the American Statistical Association 92, 357–367]. Over the period 1973–2003, we find that unexpected changes in US inflation have large effects on inflation in 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 US inflation. Moreover, our evidence indicates that US inflation has become less vulnerable to foreign shocks since the early 1990s, mainly because of the diminished influence from Germany and France. |
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