International comovements, business cycle and inflation: a historical perspective

These papers report on research carried out by, or under the supervision of, the external members of the Monetary Policy Committee (MPC) and their economic staff.
Published on 28 July 2009

External MPC Unit Discussion Paper No. 28

Haroon Mumtaz, Saverio Simonelli and Paolo Surico

Using a dynamic factor model, we uncover four main empirical regularities on international comovements in a long-run panel of real and nominal variables. First, the contribution of world comovements to domestic output growth has decreased over the post-WWII period. The contribution of regional comovements, however, has increased significantly. Second, the share of inflation variation due to a global factor has become larger since 1985. Third, over most of the post-WWII period, international comovements within regions have accounted for the bulk of fluctuations in business cycle and inflation. Fourth, prices have become significantly less countercyclical during the post-1984 sample, with the largest contribution due to external developments.

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