Working Paper: CEPR ID: DP13600
Authors: Jongrim Ha; M. Ayhan Kose; Franziska Ohnsorge
Abstract: We study the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. Our methodology allows us to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. We report three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods.
Keywords: global inflation synchronization; dynamic factor model; advanced economies; emerging markets; developing economies
JEL Codes: E31; E32; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global inflation factor (E31) | National inflation rates (E31) |
| Global inflation factor (1970-1985) (E31) | National inflation rates (E31) |
| Global inflation factor (2001-2017) (E31) | National inflation rates (E31) |
| Inflation synchronization (E31) | Inflation measures (E31) |
| Inflation synchronization (tradable goods) (E31) | Inflation synchronization (broad measures) (E31) |
| Advanced economies (O52) | Contribution of global factor to inflation variation (F62) |
| Global inflation factor (E31) | Inflation variance (E31) |