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Global Factors Driving Inflation and Monetary Policy: A Global VAR Assessment

Martin Feldkircher, Elizaveta Lukmanova () and Gabriele Tondl ()
Additional contact information
Elizaveta Lukmanova: KU Leuven
Gabriele Tondl: Department of Economics, Vienna University of Economics and Business

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: In this paper, we examine international linkages in inflation and short-term interest rates using a global sample of OECD and emerging economies. Using a Bayesian global vector autoregression (GVAR) model, we show that for short-term interest rates both movements in inflation and output play an important role. In advanced countries, however, international factors such as foreign interest rates appear as an important driver of local interest rates. For inflation, we also find evidence for the importance of global factors, such as price developments in other countries, oil prices and the exchange rate. Again, this impact of global factors appears predominately in advanced countries.

Keywords: Monetary policy; Inflation; Global VAR (search for similar items in EconPapers)
JEL-codes: E40 E43 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2019-08
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