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Structural Breaks in the International Dynamics of Inflation

Erdenebat Bataa¹; Denise R. Osborn²; Marianne Sensier²; Dick van Dijk

¹ National University of Mongolia · ² University of Manchester

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.

DOI

10.1162/rest_a_00261

Volume

95 (2)

Pages

646-659

Language

en

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BibTeX

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