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All together now: do international factors explain relative price comovements?

  • Karagedikli, Özer

    ()

    (Reserve Bank of New Zealand)

  • Mumtaz, Haroon

    ()

    (Bank of England)

  • Tanaka, Misa

    ()

    (Bank of England)

Recent 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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Paper provided by Bank of England in its series Bank of England working papers with number 381.

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Length: 35 pages
Date of creation: 10 Mar 2010
Date of revision:
Handle: RePEc:boe:boeewp:0381
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  1. Ben S. Bernanke & Jean Boivin & Piotr Eliasz, 2004. "Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach," NBER Working Papers 10220, National Bureau of Economic Research, Inc.
  2. Andrew Coleman, 2007. "Tradables and non-tradables inflation in Australia and New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 70, March.
  3. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
  4. Matteo Ciccarelli & Benoît Mojon, 2005. "Global Inflation," Working Papers Central Bank of Chile 357, Central Bank of Chile.
  5. Christopher J. Neely & David E. Rapach, 2008. "Is inflation an international phenomenon?," Working Papers 2008-025, Federal Reserve Bank of St. Louis.
  6. Mario J. Crucini & M. Ayhan Kose & Christopher Otrok, 2008. "What Are the Driving Forces of International Business Cycles?," NBER Working Papers 14380, National Bureau of Economic Research, Inc.
  7. Mumtaz, Haroon & Surico, Paolo, 2008. "Evolving International Inflation Dynamics: Evidence from a Time-varying Dynamic Factor Model," CEPR Discussion Papers 6767, C.E.P.R. Discussion Papers.
  8. 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.
  9. Tommaso Monacelli & Luca Sala, 2008. "The international dimension of inflation: evidence from disaggregated data," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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