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Are inflation movements global in nature?

Published online by Cambridge University Press:  29 April 2025

Zo Andriantomanga Open the ORCID record for Zo Andriantomanga [Opens in a new window]
Zo Andriantomanga*
Affiliation:
University of Wisconsin - Milwaukee, Milwaukee, WI, USA
*
Corresponding author: Zo Andriantomanga; Email: [email protected]
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Abstract

This paper adds to the literature on global inflation synchronization by distinguishing the traded and non-traded content of the consumption basket. Using a novel database of monthly CPI series of 40 countries from 2000, a dynamic factor model with stochastic volatility decomposes inflation into global, income-group, and idiosyncratic components. While synchronization has historically been prominent in tradable goods inflation, findings also reveal an increasing synchronization in non-tradable inflation. Second, I use a time-varying parameter vector autoregressive model to investigate the potential spillover effect. The results provide evidence of spillover from tradable to non-tradable inflation, while the reverse is mainly muted over the sample. Finally, results from local projections indicate that a tightening of US monetary policy causes a significant decline in global headline inflation, which is primarily driven by the heightened sensitivity of tradable goods.

Keywords

Inflation synchronizationtradable inflationidiosyncratic inflationbayesian estimationdynamic factor modelsstochastic volatilityC11E31F44
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e97
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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