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Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group

Author

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  • Nassar S. Al-Nassar

    (Department of Economics and Finance, College of Business and Economics, Qassim University, Buraydah 52571, Saudi Arabia)

  • Abdulrahman A. Albahouth

    (Department of Economics and Finance, College of Business and Economics, Qassim University, Buraydah 52571, Saudi Arabia)

Abstract

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this article is to explore the transmission of inflation among the G20 economies and evaluate its contribution to domestic inflation. To this end, we use the Diebold and Yilmaz spillover approach. The results that emerge from unconditional analysis reveal stark dissimilarities in inflation spillover patterns between advanced and emerging economies. Advanced economies are subject to higher spillover rates and thereby more exposed to global shocks compared to their emerging counterparts. Inflation in emerging countries is mainly derived from idiosyncratic shocks, while global shocks have only a modest influence on domestic inflation. In addition, bilateral spillovers among the G20 members show that the average pairwise directional spillovers between emerging economies are lower compared to advanced economies. The results pertaining to the spillover dynamics, on the other hand, show that total inflation spillover has a clear upward trend, indicating that the overall interconnectedness between G20 countries is increasing over time. Moreover, the estimates of spillover dynamics show a growing influence of received inflation spillovers from external shocks in both advanced and emerging economies. Policymakers in advanced economies are expected to respond to global shocks to mitigate the influence of spillovers, which is essential for economies that display high spillovers and turn out to be net receivers of shocks. However, public agencies in emerging economies should concentrate more on internal shocks to control inflation while not ignoring global shocks.

Suggested Citation

  • Nassar S. Al-Nassar & Abdulrahman A. Albahouth, 2023. "Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group," Economies, MDPI, vol. 11(4), pages 1-25, April.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:4:p:126-:d:1128610
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    Cited by:

    1. Aharon, David Y. & Aziz, Mukhriz Izraf Azman & Nor, Safwan Mohd, 2023. "Cross-country study of the linkages between COVID-19, oil prices, and inflation in the G7 countries," Finance Research Letters, Elsevier, vol. 57(C).
    2. Gefang, Deborah & Hall, Stephen G. & Tavlas, George S. & Wang, Yongli, 2024. "Quantifying spillovers among regions," Journal of International Money and Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    inflation; spillovers; common shocks; G20; advanced economies; emerging economies; Diebold and Yilmaz; crisis; pandemic;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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