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Co-movement in Inflation

Author

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  • Hugo Gerard

    (Reserve Bank of Australia)

Abstract

Inflation rates across countries tend to exhibit a degree of co-movement. In this paper we use a panel vector autoregression (panel VAR) model to investigate possible explanations of this co-movement for the G7 economies. Shocks to commodity prices are found to be more important than common movements in real activity as a driver of 'global inflation' dynamics. However, commodity prices and common real activity cannot explain all of the co-movement in inflation. Even when controlling for these factors, a common indicator of inflation still offers explanatory power for domestic inflation in the panel VAR. Given the role of global inflation in explaining inflation in the G7 countries, we then consider the significance of global inflation for Australian inflation. We find that movements in international inflation offer useful information when included in models of Australian inflation, particularly headline inflation.

Suggested Citation

  • Hugo Gerard, 2012. "Co-movement in Inflation," RBA Research Discussion Papers rdp2012-01, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2012-01
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    File URL: http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-01.pdf
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    References listed on IDEAS

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    1. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2007. "Similarities and convergence in G-7 cycles," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 850-878, April.
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    Cited by:

    1. repec:eee:eecrev:v:101:y:2018:i:c:p:157-180 is not listed on IDEAS
    2. Juan Carlos Berganza & Pedro del Río & Fructuoso Borrallo, 2016. "Determinants and implications of low global inflation rates," Occasional Papers 1608, Banco de España;Occasional Papers Homepage.

    More about this item

    Keywords

    global inflation; panel VAR; factor models; Bayesian estimation;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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