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Structural Breaks in the International Dynamics of Inflation

Erdenebat Bataa (), Denise Osborn (), Marianne Sensier and Dick van Dijk ()
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Marianne Sensier: University of Manchester

The Review of Economics and Statistics, 2013, vol. 95, issue 2, 646-659

Abstract: 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. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: inflation; international dynamics; structural breaks (search for similar items in EconPapers)
JEL-codes: C32 E31 (search for similar items in EconPapers)
Date: 2013
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