The International Transmission of Inflation

Anthony Cassese · James R. Lothian

21 citations0/0 files storedRePEc: Research Papers in Economics

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Market Dynamics and Volatility

Abstract

This paper presents a theoretical and empirical investigation into timing relationships between variables within and across industrialized countries. 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.

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References

1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 1964A Monetary History of the United States 1867-1960 1964A Monetary History of the United States, 1867-1960 1963Money and Business Cycles 1976A Classical Macroeconometric Model for the United States 1977Price Behavior in the Light of Balance of Payments Theories 1975Portfolio Equilibrium and the Balance of Payments: A Monetary Approach 1977The monetary approach to the balance of payments

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1983Currency Substitution, Flexible Exchange Rates, and the Case for International Monetary Cooperation: Discussion of a Recent Proposal (Substitution de monnaies, taux de change flexibles et arguments en faveur de la cooperation monetaire internationale: examen d'une recente proposition) (Sustitucion de monedas, tipos de cambio flexibles y argumentos en favor de la cooperacion monetaria internacional: Discusion de una propuesta reciente)1979On causality and the monetary approach to the balance of payments 1984The international transmission of inflation to a small open economy under fixed exchange rates and highly interest-sensitive capital flows

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