Inflation and price discovery in advanced economies

While the recent global inflation appears to be under control, significant uncertainty remains surrounding the future potential of disinflationary trends and the renewal of inflationary pressure. Therefore, it is crucial to study the dynamics of price discovery across the inflation rates of some of the largest economies to implement future monetary and fiscal policies effectively. Traditionally, price discovery is understood as the process of identifying which market or economic variable leads to incorporating new information and whose prices are closer to the true value, thus requiring less adjustment to reach a long-run equilibrium. This study uses the Gonzalo and Granger (1995) price discovery approach to examine the dynamics of inflation leadership among five advanced economies from 1970 to 2025. Our findings indicate that Germany plays a dominant role in the price discovery process. Through panel analysis, we further identify key drivers shaping this leadership in price discovery.