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Local Inflation Reconsidering the International Comovement of Inflation
In this paper we reconsider the degree of international comovement of inflation rates. We use a dynamic hierarchical factor model that is able to decompose Consumer Price Index (CPI) inflation in a panel of countries into (i) a factor common to all inflation series and all countries, (ii) a fact...
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| Udgivet i: | MAGKS - Joint Discussion Paper Series in Economics (Band 03-2013) |
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| Autoren: | , |
| Format: | Artikel |
| Sprog: | engelsk |
| Udgivet: |
Philipps-Universität Marburg
2013
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| Fag: | |
| Online adgang: | PDF-Volltext |
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| Summary: | In this paper we reconsider the degree of international comovement of
inflation rates. We use a dynamic hierarchical factor model that is able
to decompose Consumer Price Index (CPI) inflation in a panel of countries
into (i) a factor common to all inflation series and all countries,
(ii) a factor specific to a given sub-section of the CPI, (iii) a country
group-factor and (iv) a country-specific component. With its pyramidal
structure, the model allows for the possibility that the global factor
affects the country-group factor and other subordinated factors but
not vice versa. Using quarterly data for industrialized and emerging
economies from 1996 to 2011 we find that about two thirds of overall
inflation volatility are due to country-specific determinants. For CPI
inflation net of food and energy, the global factor and the CPI basketspecific
factor account for less than 20% of inflation variation. We argue
that "local inflation" rather than "global inflation" (Ciccarelli and Mojon
(2010)) is a better description of the evidence. Only energy price inflation
in industrial economies is dominated by common factors. |
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| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0167 |