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Reconsidering the International Comovement of Inflation

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  • Marcel Förster

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  • Peter Tillmann

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Abstract

In this paper we reconsider the degree of international comovement of inflation rates. We use a dynamic hierarchical factor model that is able to decompose Consumer Price Index (CPI) inflation in a panel of countries into (i) a factor common to all inflation series and all countries, (ii) a factor specific to a given sub-section of the CPI, (iii) a country group-factor and (iv) a country-specific component. With its pyramidal structure, the model allows for the possibility that the global factor affects the country-group factor and other subordinated factors but not vice versa. Using quarterly data for industrialized and emerging economies from 1996 to 2011 we find that about two thirds of overall inflation volatility is due to country-specific determinants. For CPI inflation net of food and energy, the global factor and the CPI basket-specific factor account for less than 20 % of inflation variation. Only energy price inflation in industrial economies is dominated by common factors. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Marcel Förster & Peter Tillmann, 2014. "Reconsidering the International Comovement of Inflation," Open Economies Review, Springer, vol. 25(5), pages 841-863, November.
  • Handle: RePEc:kap:openec:v:25:y:2014:i:5:p:841-863
    DOI: 10.1007/s11079-014-9312-1
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    References listed on IDEAS

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    1. Auer, Raphael & Fischer, Andreas M., 2010. "The effect of low-wage import competition on U.S. inflationary pressure," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 491-503, May.
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    1. repec:kap:openec:v:29:y:2018:i:2:d:10.1007_s11079-017-9456-x is not listed on IDEAS
    2. repec:zbw:espost:171324 is not listed on IDEAS
    3. Altansukh, Gantungalag & Becker, Ralf & Bratsiotis, George J. & Osborn, Denise R., 2017. "What is the Globalisation of Inflation?," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 1-27.
    4. Aleš Bulíř & Jaromír Hurník & Kateřina Šmídková, 2016. "What Do Central Banks Know about Inflation Factors?," Open Economies Review, Springer, vol. 27(4), pages 795-810, September.
    5. John A. Tatom, 2017. "Globalization and Inflation: a Swiss Perspective," Open Economies Review, Springer, vol. 28(3), pages 523-545, July.

    More about this item

    Keywords

    Inflation; Energy prices; Monetary policy; Globalization; Dynamic hierarchical factor model; E31; E32; F44;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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