Structural Breaks in the International Dynamics of Inflation
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This paper proposes an iterative procedure to discriminate between structural breaks in the coefficients and the disturbance covariance matrix of a system of equations, with recursive procedures then identifying individual coefficient shifts and separating volatility from correlation breaks. Structural breaks in short-term cross-country inflation relations are then examined for major G-7 economies and within the euro area. There is evidence that the euro area leads inflation in North America, while changing short-term interactions apply within the euro area. Covariability generally increases from the late 1990s, while euro-area countries move from essentially idiosyncratic contemporaneous variation to comovement in the 1980s.
| Original language | English |
|---|---|
| Pages (from-to) | 646-659 |
| Journal | Review of Economics and Statistics |
| Volume | 95 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 1 May 2013 |
| Externally published | Yes |