Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73069
Authors: 
Förster, Marcel
Tillmann, Peter
Year of Publication: 
2013
Series/Report no.: 
Joint Discussion Paper Series in Economics 03-2013
Abstract: 
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.
Subjects: 
Inflation
Energy Prices
Monetary Policy
Globalization
Dynamic Hierarchical Factor Model
JEL: 
E31
E32
F44
Document Type: 
Working Paper

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