Working Paper: CEPR ID: DP296
Authors: M. J. Artis; D. Nachane
Abstract: The paper presents various tests of the hypothesis that, through the mechanism of the European Monetary System. Germany exercised a counter-inflationary leadership role in the 1980s. Evidence is provided that expectations of German inflation may be thought of as having impacted more strongly on expectations of inflation in other EMS countries in the EMS period than on non-EMS countries (the UK) and in earlier periods. Co-integration tests show inflation rates in partner EMS member countries to be cointegrated with inflation in Germany in the EMS period, but the same is true for the UK suggesting that the EMS arrangements could not have been responsible. Co-integration tests also reveal that bilateral exchange rates have not been particularly stable in this period and do not follow P.
Keywords: wages; prices; cointegration; EMS
JEL Codes: 423; 431
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| German inflation expectations (E31) | inflation expectations in other EMS countries (F36) |
| German inflation forecasts (E31) | inflation forecasts of other EMS countries (F37) |
| German inflation forecasts (E31) | actual inflation outcomes in other EMS countries (E31) |
| German inflation (N14) | inflation rate in other EMS countries (F36) |
| German inflation (N14) | inflation rate in UK (E31) |