International Comovements In Inflation Rates And Country Characteristics

Common shocks, similarities in central bank reaction functions, and international trade potentially produce common components in international inflation rates. This paper characterizes such links in international inflation rates with a dynamic latent factor model that decomposes 64 national inflation rates into world, regional, and idiosyncratic components. The world and regional components account for 35% and 16%, respectively, of annual inflation variability on average across countries, so that international influences together explain just over half of inflation variability. The importance of the world and regional components, however, differs substantially across countries.

Provided by: Federal Reserve Bank of St. Louis Topic: CXO Date Added: Jun 2011 Format: PDF

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