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Global inflation synchronization

Author

Listed:
  • Jongrim Ha
  • M. Ayhan Kose
  • Franziska L. Ohnsorge

Abstract

We study the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. Our methodology allows us to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. We report three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods.

Suggested Citation

  • Jongrim Ha & M. Ayhan Kose & Franziska L. Ohnsorge, 2019. "Global inflation synchronization," CAMA Working Papers 2019-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2019-24
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2019-03/24_2019_ha_kose_ohnsorge.pdf
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    References listed on IDEAS

    as
    1. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
    2. Auer, Raphael A. & Mehrotra, Aaron, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 129-151.
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    5. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses," Policy Research Notes (PRNs) 94725, The World Bank.
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    7. Francesco Bianchi & Andrea Civelli, 2015. "Globalization and Inflation: Evidence from a Time Varying VAR," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 406-433, April.
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    More about this item

    Keywords

    Global inflation; synchronization; dynamic factor model; advanced economies; emerging markets; developing economies.;

    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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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