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Evolving International Inflation Dynamics: Evidence from a Time-varying Dynamic Factor Model

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Mumtaz, Haroon
Surico, Paolo

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Abstract

Several industrialised countries have had a similar inflation experience in the past 30 years, with inflation high and volatile in the 1970s and the 1980s but low and stable in the most recent period. We explore the dynamics of inflation in these countries via a time-varying factor model. This statistical model is used to describe movements in inflation that are idiosyncratic or country specific and those that are common across countries. In addition, we investigate how comovement has varied across the sample period. Our results indicate that there has been a decline in the level, persistence and volatility of inflation across our sample of industrialised countries. In addition, there has been a change in the degree of comovement, with the level and persistence of national inflation rates moving more closely together since the mid-1980s.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6767.

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Date of creation: Mar 2008
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Handle: RePEc:cpr:ceprdp:6767

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Keywords: factor model Low inflation monetary policy time variation

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Find related papers by JEL classification:
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

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  2. Jacquier, Eric & Polson, Nicholas G. & Rossi, P.E.Peter E., 2004. "Bayesian analysis of stochastic volatility models with fat-tails and correlated errors," Journal of Econometrics, Elsevier, vol. 122(1), pages 185-212, September. [Downloadable!] (restricted)
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  6. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September. [Downloadable!] (restricted)
  7. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings, Federal Reserve Bank of Kansas City, pages 77-112. [Downloadable!]
  8. Matteo Ciccarelli & Benoît Mojon, 2005. "Global inflation," Working Paper Series 537, European Central Bank. [Downloadable!]
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  9. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April. [Downloadable!] (restricted)
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  10. Fabio Canova & Luca Gambetti, 2003. "Structural changes in the US economy: Bad Luck or Bad Policy?," Economics Working Papers 918, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2005. [Downloadable!]
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    Other versions:
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