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Disentangling the sources of inflation synchronization. Evidence from a large panel dataset

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  • Szafranek, Karol

Abstract

What affects inflation synchronization? To answer this question I employ a two-step approach. First, with the means of dynamic conditional correlations I quantify time-varying price co-movements. Second, I disentangle their sources using panel regressions on a heterogeneous sample of countries. Estimation results indicate that various factors affects inflation synchronization, both in time and across advanced, emerging and least developed economies. Price co-movements tend to strengthen along the unification of monetary policy frameworks, the falling independence of central banks and due to the unconventional monetary policy by the Federal Reserve. Large variations in oil prices affect markedly inflation synchronization, except for low-income countries for which changes in the degree of exchange rate rigidity, the level of inflation and country's development explain the bulk of the variation in price co-movements. Inflation synchronization also intensifies with rising trade tensions, especially in emerging economies, whereas for the UE economies increased synchronization in business cycles as well as recent disinflationary pressures also strengthen price co-movements to some extent.

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  • Szafranek, Karol, 2021. "Disentangling the sources of inflation synchronization. Evidence from a large panel dataset," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 229-245.
    • Handle: RePEc:eee:reveco:v:76:y:2021:i:c:p:229-245
    DOI: 10.1016/j.iref.2021.05.002
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    More about this item

    Keywords

    Inflation synchronization; DCC GARCH; Panel regression; Sources of co-movements;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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