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Global Inflation

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  • Matteo Ciccarelli
  • Benoît Mojon

Abstract

This paper shows that inflation in industrialized countries is largely a global phenomenon. First, inflations of (22) OECD countries have a common factor that alone account for nearly 70% of their variance. This large variance share that is associated to Global Inflation is not only due to the trend components of inflation (up from 1960 to 1980 and down thereafter) but also to fluctuations at business cycle frequencies. Second, Global Inflation is, consistently with standard models of inflation, a function of real developments at short horizons and monetary developments at longer horizons. Third, there is a very robust "error correction mechanism" that brings national inflation rates back to Global Inflation. This model consistently beats the previous benchmarks used to forecast in inflation 1 to 8 quarters ahead across samples and countries.

Suggested Citation

  • Matteo Ciccarelli & Benoît Mojon, 2005. "Global Inflation," Working Papers Central Bank of Chile 357, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:357
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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