Global Relative Price Shocks: The Role of Macroeconomic Policies

Adam Cagliarini, Warwick McKibbin

    Research output: Contribution to conferencePaper

    Abstract

    We use the multi-sector and multi-country G-Cubed model to explore the potential role of three major shocks - to productivity, risk premia and US monetary policy - to explain the large movements in relative prices between 2002 and 2008. We find that productivity shocks were major drivers of relative price movements, while shocks to risk premia and US monetary policy contributed temporarily to some of the relative price dispersions we observe in the data. The effect of US monetary policy shocks on relative prices was most pronounced in countries that fix their currency to the US dollar. Those countries that float were largely shielded from these effects. We conclude that the shocks we consider cannot fully capture the magnitude of the relative price movements over this period, suggesting that other driving forces could also be responsible, including those outside of the model.
    Original languageEnglish
    Pages305-333
    Publication statusPublished - 2010
    EventConference on Inflation Challenges in an Era of Relative Price Shocks - Sydney Australia
    Duration: 1 Jan 2010 → …

    Conference

    ConferenceConference on Inflation Challenges in an Era of Relative Price Shocks
    Period1/01/10 → …

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