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A global perspective on inflation and propagation channels

Author

Listed:
  • Luca Gattini

    (European Investment Bank, Luxembourg)

  • Huw Pill

    (Goldman Sachs, United Kingdom)

  • Ludger Schuknecht

    (Bundesministerium Finanz, Germany)

Abstract

This paper revisits the evidence on monetary policy transmission. It extends the existing literature in three dimensions. First, we attempt to internalise potential international channels of transmission by taking a global perspective. More specifically, we explore global aggregates covering a broader set of countries (ca. 70% per cent of the world economy) and a longer time span (from 1960 to 2013) than previous studies. Second, we broaden the set of transmission channels considered, notably by exploring interactions among monetary variables, inflation and asset prices (including residential property prices). Third, we look at the potential role of public debt in driving price developments, on the grounds underpinned by fiscal theories of the price level. On the basis of a VAR analysis, we find that: (1) global money demand shocks affect global inflation and global commodity prices (which, in turn, impact on inflation); (2) global asset price dynamics respond to financing cost shocks and (very modestly) to shocks to global money demand; and (3) positive house price shocks exert a significant influence on inflation. From a global perspective, the study suggests that an understanding of inflation requires recognition of the externalities that global commodity and asset price developments exert over domestic inflation.

Suggested Citation

  • Luca Gattini & Huw Pill & Ludger Schuknecht, 2015. "A global perspective on inflation and propagation channels," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(3), pages 50-76, May.
    • Handle: RePEc:sgm:jbfeuw:v:1:y:2015:i:3:p:50-76
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    Cited by:

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    2. Rangasamy, L. & Nel, E., 2015. "Reconsidering the role of food prices in South African headline inflation," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 53(4), March.
    3. de Mendonça, Helder Ferreira & Nascimento, Natalia Cunha, 2020. "Monetary policy efficiency and macroeconomic stability: Do financial openness and economic globalization matter?," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    4. John A. Tatom, 2017. "Globalization and Inflation: a Swiss Perspective," Open Economies Review, Springer, vol. 28(3), pages 523-545, July.
    5. Murach, Michael & Wagner, Helmut, 2019. "The effects of external shocks on the business cycle in China: A structural change perspective," CEAMeS Discussion Paper Series 1/2016, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS), revised 2019.
    6. Michael Murach & Helmut Wagner, 2021. "The effects of external shocks on the business cycle in China: A structural change perspective," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 681-702, August.
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    More about this item

    Keywords

    VAR; global inflation; global house prices; global money;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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