Working Paper: CEPR ID: DP5878
Authors: Fabio Canova; Luca Gambetti; Evi Pappa
Abstract: We examine the dynamics of output growth and inflation in the US, Euro area and UK using a structural time varying coefficient VAR. There are important similarities in structural inflation dynamics across countries; output growth dynamics differ. Swings in the magnitude of inflation and output growth volatilities and persistences are accounted for by a combination of three structural shocks. Changes over time in the structure of the economy are limited and permanent variations largely absent. Changes in the volatilities of structural shocks matter.
Keywords: Persistence; Structural Time Varying VARs; Transmission; Variability
JEL Codes: C11; E12; E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| structural shocks (E32) | inflation dynamics (E31) |
| structural shocks (E32) | output growth dynamics (O40) |
| inflation dynamics (E31) | output growth dynamics (O40) |
| changes in transmission of demand shocks (E39) | output growth dynamics (US) (E23) |
| changes in transmission of monetary policy shocks (F42) | inflation dynamics (Euro area) (E31) |
| changes in volatility of supply shocks (E39) | inflation dynamics (Euro area) (E31) |
| changes in transmission of demand shocks (E39) | inflation dynamics (UK) (E31) |
| changes in volatility of supply shocks (E39) | inflation dynamics (UK) (E31) |
| changes in volatility of monetary policy shocks (E39) | inflation dynamics (UK) (E31) |