External shocks and international inflation linkages: a global VAR analysis

Amid the recent commodity price gyrations, policy makers have become increasinglyconcerned in assessing to what extent oil and food price shocks transmit to theinflationary outlook and the real economy. In this paper, we try to tackle this issue bymeans of a Global Vector Autoregressive (GVAR) model. We first examine the shortruninflationary effects of oil and food price shocks on a given set of countries.Secondly, we assess the importance of inflation linkages among countries, by disentanglingthe geographical sources of inflationary pressures for each region.Generalized impulse response functions reveal that the direct inflationary effects of oilprice shocks affect mostly developed countries while less sizeable effects areobserved for emerging economies. Food price increases also have significativeinflationary direct effects, but especially for emerging economies. Moreover,significant second-round effects are observed in some countries. Generalized forecasterror variance decompositions indicate that considerable...