Cross-Country Connectedness in Inflation and Unemployment: Measurement and Macroeconomic Consequences

Binh Thai Pham () and Hector Sala
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Binh Thai Pham: University of Economics Ho Chi Minh City

No 14212, IZA Discussion Papers from IZA Network @ LISER

Abstract: We bring the notion of connectedness (Diebold and Yilmaz, 2012) to a set of two critical macroeconomic variables as inflation and unemployment. We focus on the G7 economies plus Spain, and use monthly data –high-frequency data in a macro setting– to explore the extent and consequences of total and directional volatility spillovers across variables and countries. We find that total connectedness is larger for prices (58.28%) than for unemployment (41.81%). We also identify asymmetries per country that result in higher short-run Phillips curve trade-offs in recessions and lower trade-offs in expansions. Besides, by exploring time-varying connectedness (resulting from country-specific shocks), we find that volatility spillovers magnify in periods of common economic turmoil such as the Global Financial Crisis. Our results call for an enhancement of international macroeconomic policy coordination.

Keywords: common shocks; G7; country-specific shocks; connectedness; Philips curve (search for similar items in EconPapers)
JEL-codes: C32 C50 E24 F41 F42 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2021-03
New Economics Papers: this item is included in nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Empirical Economics , 2022, 62, 1123 - 1146

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Journal Article: Cross-country connectedness in inflation and unemployment: measurement and macroeconomic consequences (2022)
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