All together now: do international factors explain relative price comovements?
AbstractRecent research has found evidence of increasing comovement in CPI inflation rates across industrialised countries. This paper considers whether this can be attributed to greater global integration of product markets. To examine this question, we build a data set of 28 matched product category price indices for fourteen advanced economies for 1998 Q1 to 2008 Q2, and decompose the inflation rates into a world factor, country-specific factors, and category-specific factors using a Bayesian dynamic factor model with Gibbs sampling. We find that the category-specific factors account for a large part of the comovement in the prices of goods which are intensive in internationally traded primary commodities; but this is less evident for other traded goods. We also find that both the world factor and the category-specific factors become more significant in explaining the movement in the relative prices in the second half of our sample.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 381.
Length: 35 pages
Date of creation: 10 Mar 2010
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Disaggregated international price; dynamic factor model; Gibbs sampling;
Other versions of this item:
- Özer Karagedikli & Haroon Mumtaz & Misa Tanaka, 2010. "All together now: Do international factors explain relative price co-movements?," Reserve Bank of New Zealand Discussion Paper Series DP2010/02, Reserve Bank of New Zealand.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-CBA-2010-03-20 (Central Banking)
- NEP-MAC-2010-03-20 (Macroeconomics)
- NEP-OPM-2010-03-20 (Open Economy Macroeconomic)
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