Puzzling Global Stochastic Trends in Growth, Interest and Inflation and the Volcker Disinflation

Heinlein, Reinhold; Krolzig, Hans Martin

Abstract

© 2016 The University of Manchester and John Wiley & Sons Ltd This paper aims to identify the stable long-run relationships as well as unstable driving forces of the world economy using a small aggregated cointegrated VAR model encompassing quarterly US, UK, Japanese and Euro Area data for the post-Bretton-Woods era. Three stable long-run relationships are found: output growth, the term spread and the inflation climate. The common stochastic trend of the global macro economy is dominated by the cumulated real short-term interest rate shocks, reflecting the strong increase of global real rates during the Volcker disinflation period, one of the dominating events of the last 40 years of macro history.

• Journal Article Type: Article
• Acceptance Date: Sep 7, 2016
• Online Publication Date: Nov 3, 2016
• Publication Date: Mar 1, 2018
• Deposit Date: Sep 18, 2019
• Publicly Available Date: Sep 19, 2019
• Journal: Manchester School
• Print ISSN: 1463-6786
• Electronic ISSN: 1467-9957
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 86
• Issue: 2
• Pages: 178-194
• DOI: https://doi.org/10.1111/manc.12175
• Public URL: https://uwe-repository.worktribe.com/output/2718287
• Contract Date: Sep 18, 2019