Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/17853 
Year of Publication: 
2006
Series/Report no.: 
Kiel Working Paper No. 1337
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
This paper shows that in inflation in industrialized countries is largely a global phenomenon. First, inflations 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 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 inflation 1 to 8 quarters ahead across samples and countries.
Subjects: 
Inflation
common factor
international business cycle
OECD countries
JEL: 
E31
F42
E37
Document Type: 
Working Paper

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