The Timing of Monetary and Price Changes and the International Transmission of Inflation

Anthony Cassese and James Lothian

No 549, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a theoretical and empirical investigation into timing relationships between variables within and across industrialized countries. In the analysis we highlight the two polar cases of completely closed and open economies and draw some implications for timing between monetary expansion and inflation, inter-country comparisons of inflation rates and interest rates, and comparisons of central bank behavior. The Granger-causality test is applied in a bivariate fashion to these groups of variables. The main empirical results of our analysis are: (1) Domestic monetary expansion appears to lead inflation in the sense that money Granger-causes prices without feedback, contradicting an implication of the monetary approach to the balance of payments. (2) Hardly any significant timing relationship exists between domestic and foreign rates of inflation during the fixed exchange rate period, providing no evidence for a generalized "law of one price." (3) Some sterilization of official reserve inflows was successfully performed by the non-reserve central banks, except for Canada. (4) U.S. interest rates Granger-cause foreign rates, providing evidence of some international transmission via asset markets.

Date: 1980-09
Note: ITI IFM
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Published as Journal of Monetary Economics, Vol. 10, no. 1 (1982): 1-24.
Published as The Timing of Monetary and Price Changes and the International Transmission of Inflation , Anthony Cassese, James R. Lothian. in The International Transmission of Inflation , Darby, Lothian, Gandolfi, Schwartz, and Stockman. 1983

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Chapter: The Timing of Monetary and Price Changes and the International Transmission of Inflation (1983)
Journal Article: The timing of monetary and price changes and the international transmission of inflation (1982)
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