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Global Inflation

  • Matteo Ciccarelli
  • Benoît Mojon

This paper shows that ination in industrialized countries is largely a global phenom- enon. First, inations of (22) OECD countries have a common factor that alone accounts for nearly 70% of their variance. This large variance share that is associated to Global Ination is not only due to the trend components of ination (up from 1960 to 1980 and down thereafter) but also to uctuations at business cycle frequencies. Second, Global In- ation is, consistently with standard models of ination, 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 ination rates back to Global Ination. This model consistently beats the previous benchmarks used to forecast ination 1 to 8 quarters ahead across samples and countries.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1337.

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Length: 41 pages
Date of creation: Jun 2007
Handle: RePEc:kie:kieliw:1337
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