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International Inflation Spillovers Through Input Linkages

Raphael Auer, Andrei Levchenko and Philip Sauré ()

No 655, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: We document that observed international input-output linkages contribute substantially to synchronizing producer price inflation (PPI) across countries. Using a multi-country, industry-level dataset that combines information on PPI and exchange rates with international and domestic input-output linkages, we recover the underlying cost shocks that are propagated internationally via the global input-output network, thus generating the observed dynamics of PPI. We then compare the extent to which common global factors account for the variation in actual PPI and in the underlying cost shocks. Our main finding is that across a range of econometric tests, input-output linkages account for half of the global component of PPI inflation. We report three additional findings: (i) the results are similar when allowing for imperfect cost pass-through and demand complementarities; (ii) PPI synchronization across countries is driven primarily by common sectoral shocks and input-output linkages amplify co-movement primarily by propagating sectoral shocks; and (iii) the observed pattern of international input use preserves fat-tailed idiosyncratic shocks and thus leads to a fat-tailed distribution of inflation rates, i.e., periods of disinflation and high inflation.

Keywords: international inflation synchronization; input linkages (search for similar items in EconPapers)
JEL-codes: F33 F41 F42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2017-02-15
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http://www.fordschool.umich.edu/rsie/workingpapers/Papers651-675/r655.pdf

Related works:
Journal Article: International Inflation Spillovers through Input Linkages (2019) Downloads
Working Paper: International inflation spillovers through input linkages (2017) Downloads
Working Paper: International Inflation Spillovers Through Input Linkages (2017) Downloads
Working Paper: International Inflation Spillovers Through Input Linkages (2017) Downloads
Working Paper: International Inflation Spillovers Through Input Linkages (2017) Downloads
Working Paper: International Inflation Spillovers Through Input Linkages (2017) Downloads
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