Abstract
Many global shocks, including the renegotiation of NAFTA, the United States–China trade war, the Brexit, and the COVID-19 pandemic, may have recently influenced the inflation spillover in the G7 countries. The current literature overlooks the influence of these important events on the inflation spillover of the G7 countries. This study fulfills this gap and investigates the nature of inflation spillover in the short, medium, and long term. Using the monthly data from 1956:6 to 2020:12, the study finds that Japan and the United States are the main transmitters of inflation. International trade, purchasing power parity, low-cost technology, and the Abenomics policy were found to be responsible for the inflation spillover. We suggest that the central banks of these countries collaborate to achieve the targeted inflation rate.
Highlights
Management 14: 392. https://Since the global oil price shock in the mid-1970s, most central banks around the world have set maintaining price stability as their primary objective
The results show that the degree of inflation spillover in the G7 countries varies across different terms
Estimation Results Based on the Spillover Index Methodology of Barunik and Krehlik
Summary
Since the global oil price shock in the mid-1970s, most central banks around the world have set maintaining price stability as their primary objective. Inflation targets were introduced in Canada and the United Kingdom in the 1990s (Johnson 2002). Free trade, integrated monetary policies, observed and unobserved global shocks, etc., have contributed to the international spillover of inflation among the G7 countries over time. The central banks of the G7 countries have been facing challenges to achieve the targeted inflation rate in recent years. Against this backdrop, this paper investigates the nature and extent of inflation spillover in the G7 countries
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