# Analysing the spillover of inflation in selected Euro-area countries

- 17 Downloads

## Abstract

We examined the spillover of inflation in selected Euro-area countries using monthly consumer price index (CPI) based inflation data covering the period 1955M1 to 2017M4. To achieve our objective, we used two recently developed methods of spillover: a time-domain spillover method, *Diebold*–*Yilmaz* (hereafter referred as DY method) and a frequency-domain method, *Barunik*–*Krehlik* (hereafter referred as BK method). We analysed 1–4 months and more than 4 months spillovers. The study has importance because the co-movement in the international inflation rates, among others, may be produced by common shocks, similarities in central bank reaction functions, international trade and the operation of purchasing power parity theory. However, to assess the synchronisation of inflation fluctuations across countries or regions, it is critical to understand the inflation behaviour and formulation of correct monetary policy.

## Keywords

Inflation Spillover Time–frequency## JEL Codes

C40 E31 E32 F44## References

- Aastveit, K.A., H.C. Bjørnland, and L.A. Thorsrud. 2016. The world is not enough! Small open economies and regional dependence.
*The Scandinavian Journal of Economics*118 (1): 168–195.CrossRefGoogle Scholar - Abuaf, N., and P. Jorion. 1990. Purchasing power parity in the long run.
*The Journal of Finance*45 (1): 157–174.CrossRefGoogle Scholar - Antonakakis, N., I. Chatziantoniou, and G. Filis. 2014. Dynamic spillovers of oil price shocks and economic policy uncertainty.
*Energy Economics*44: 433–447.CrossRefGoogle Scholar - Auer, R. A., and Saure, P. 2013. The globalisation of inflation: A view from the cross section. In
*Globalisation and inflation dynamics in Asia and the Pacific, volume 70 of BIS papers chapters*, ed. Bank for International Settlements, 113–118. Basel: Bank for International Settlements.Google Scholar - Barunik, J., and Krehlik, T. 2016. Measuring the frequency dynamics of financial and macroeconomic connectedness, FinMaP-Working Paper, No. 54, Kiel University, FinMaP - Financial Distortions and Macroeconomic Performance, Kiel.Google Scholar
- Barunik, J., and T. Krehlik. 2018. Measuring the frequency dynamics of financial connectedness and systemic risk.
*Journal of Financial Econometrics*16 (2): 271–296.CrossRefGoogle Scholar - Batten, J.A., C. Ciner, and B.M. Lucey. 2015. Which precious metals spill over on which, when and why? Some evidence.
*Applied Economics Letters*22 (6): 466–473.CrossRefGoogle Scholar - Bernanke, B. (2007). Global imbalances: recent developments and prospects.
*Bundesbank lecture speech*, September, 4, pp. 18.Google Scholar - Ciccarelli, M., and B. Mojon. 2005. Global Inflation, ECB WPS no 537.Google Scholar
- Ciccarelli, M., and B. Mojon. 2010. Global inflation.
*The Review of Economics and Statistics*92 (3): 524–535.CrossRefGoogle Scholar - Diebold, F.X., and K. Yilmaz. 2012. Better to give than to receive: predictive directional measurement of volatility spillovers.
*International Journal of Forecasting*28 (1): 57–66.CrossRefGoogle Scholar - Diebold, F.X., and K. Yilmaz. 2015. Measuring the dynamics of global business cycle connectedness. In
*Unobserved components and time series econometrics*, ed. S.J. Koopman and N. Shephard, 45–69. Oxford: Oxford University Press.CrossRefGoogle Scholar - Dragouni, M., Filis, G., and Antonakakis, N. 2013. Time-varying interdependencies of tourism and economic growth: evidence from European Countries.
*FIW Working Paper series*128, FIW.Google Scholar - European central bank. 2017. European Central Bank. https://www.ecb.europa.eu/mopo/strategy/pricestab/html/index.en.html. Accessed 30 Oct 2017.
- Fernández-Macho, J. 2012. Wavelet multiple correlation and cross–correlation: a multiscale analysis of Eurozone stock markets.
*Physica A*391 (4): 1097–1104.CrossRefGoogle Scholar - Forbes, J., N. Hewlett, and F. Nectoux. 2001.
*Contemporary France: essays and texts on politics, economics and society*. Pearson Education: Routledge.Google Scholar - Gambetti, L., and Musso, A. 2017. The macroeconomic impact of the ECB’s expanded asset purchase programme (APP).
*ECB Working Paper No. 2075*.Google Scholar - Hakkio, C.S. 2010.
*Global inflation dynamics*. Newbury Park: DIANE Publishing.Google Scholar - Jordan, T.J. 2016. The impact of international spillovers on Swiss inflation and the exchange rate.
*Journal of International Money and Finance*68: 262–265.CrossRefGoogle Scholar - Kose, M.A., C. Otrok, and C.H. Whiteman. 2003. International business cycles: world, region, and country-specific factors.
*The American Economic Review*93 (4): 1216–1239.CrossRefGoogle Scholar - Lucey, B.M., C. Larkin, and F. O’Connor. 2014. Gold markets around the world—who spills over what, to whom, when?
*Applied Economics Letters*21 (13): 887–892.CrossRefGoogle Scholar - Monacelli, T., and L. Sala. 2009. The international dimension of inflation: evidence from disaggregated consumer price data.
*Journal of Money, Credit and Banking*41 (s1): 101–120.CrossRefGoogle Scholar - Montagnoli, A., and J. Nagayasu. 2015. UK house price convergence clubs and spillovers.
*Journal of Housing Economics*30: 50–58.CrossRefGoogle Scholar - Neely, C.J., and D.E. Rapach. 2011. International comovements in inflation rates and country characteristics.
*Journal of International Money and Finance*30 (7): 1471–1490.CrossRefGoogle Scholar - Osorio, C., and D.F. Unsal. 2013. Inflation dynamics in Asia: causes, changes, and spillovers from China.
*Journal of Asian Economics*24: 26–40.CrossRefGoogle Scholar - Polanco-Martinez, J.M., and F.J. Fernández-Macho. 2014. Package W2CWM2C: description, features, and applications.
*Computing in Science and Engineering*16 (6): 68–78.CrossRefGoogle Scholar - Tiwari, A.K., N. Bhanja, A.B. Dar, and O.R. Olayeni. 2015. Analyzing time–frequency based co-movement in inflation: evidence from G-7 countries.
*Computational Economics*45 (1): 91–109.CrossRefGoogle Scholar - Tiwari, A.K., N. Bhanja, and A.B. Dar. 2016. Frequency based co-movement of inflation in selected euro area countries.
*OECD Journal: Journal of Business Cycle Measurement and Analysis*2015 (2): 1–13.Google Scholar - Wang, P., and Y. Wen. 2007. Inflation dynamics: a cross-country investigation.
*Journal of Monetary Economics*54 (7): 2004–2031.CrossRefGoogle Scholar - Zhou, S., M. Bahmani-Oskooee, and A.M. Kutan. 2008. Purchasing power parity before and after the adoption of the Euro.
*Review of World Economics*144 (1): 134–150.CrossRefGoogle Scholar