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Has international CPI inflation comovement strengthened since the global financial crisis?

Published online by Cambridge University Press:  15 July 2021

Inseok Shin  and
Kyu Ho Kang
Inseok Shin
Affiliation:
College of Business and Economics, Chung-Ang University, Seoul 06974, South Korea
Kyu Ho Kang*
Affiliation:
Department of Economics, Korea University, Seoul 02841, South Korea
*
*Corresponding author. Email: [email protected]
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Abstract

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This study detects a structural break in international consumer price index (CPI) inflation comovement. We estimate the dynamic common factor models with unknown breakpoints of cross-country inflation rates and global price index of all commodities. We identify two global factors from the models: a commodity global factor and a noncommodity global factor. The former is a common factor between national inflation rates and commodity price index growth; the latter is a common factor among national inflation rates. The estimation of 29 countries’ quarterly CPI inflation data from 2001:Q1 to 2018:Q2 shows a one-time break in cross-country inflation dynamics in 2008:Q4. Thereafter, the importance of global factors in explaining the national inflation rates is remarkably increased. Furthermore, the increased global inflation synchronization is mainly driven by the larger role of the noncommodity global factor rather than that of the commodity global factor.

Keywords

Variance decompositionstructural breakfinancial opennessBayesian MCMC estimationE31F41F62
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 1 , January 2023 , pp. 111 - 140
Copyright
© Cambridge University Press 2021

Footnotes

†

Large part of this study was conducted when the first author was a member of the monetary policy board at the Bank of Korea. The views expressed here are those of the authors and do not necessarily reflect those of the Bank of Korea. The authors thank Min Han in the Bank of Korea for excellent research assistance. Kyu Ho Kang acknowledges financial support by Korea University (K1910631). All remaining errors are our own.

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