International inflation spillovers - the role of different shocks
Matthias Gubler () and
Diego Känzig ()
Authors registered in the RePEc Author Service: Gregor Bäurle ()
No 2017-07, Working Papers from Swiss National Bank
We analyze how the transmission of international inﬂation spillovers depends on the nature of the underlying shocks that drive inﬂation abroad. We ﬁnd evidence for substantial heterogeneity in the magnitude of spillovers to domestic inﬂation related to the fundamental source of international price ﬂuctuations and the corresponding monetary policy reactions. Indeed, it turns out that the relative conduct of monetary policy varies depending on the source of these price ﬂuctuations, and so does the role of the exchange rate as a shock absorber. We show this by looking at international inﬂation spillovers to Switzerland through the lenses of a Bayesian structural dynamic factor model relating a large set of disaggregated prices to key macroeconomic factors. Being a small open economy with an independent monetary policy, Switzerland is a particularly suitable subject for studying the role of monetary policy in the transmission of foreign shocks. However, our results more broadly indicate that inﬂation spillovers need to be analyzed in a framework allowing for diﬀerent transmission channels.
Keywords: international spillovers; inﬂation; monetary policy; Bayesian factor model; sign restrictions (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 E52 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2017-07
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