Evolving international inflation dynamics: evidence from a time-varying dynamic factor model

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 12 February 2008

Working Paper No. 341
By Haroon Mumtaz and Paolo Surico

Several industrialised countries have had a similar inflation experience in the past 30 years, with inflation high and volatile in the 1970s and the 1980s but low and stable in the most recent period. We explore the dynamics of inflation in these countries via a time-varying factor model. This statistical model is used to describe movements in inflation that are idiosyncratic or country specific and those that are common across countries. In addition, we investigate how comovement has varied across the sample period.

Our results indicate that there has been a decline in the level, persistence and volatility of inflation across our sample of industrialised countries. In addition, there has been a change in the degree of comovement, with the level and persistence of national inflation rates moving more closely together since the mid-1980s.

PDFEvolving international inflation dynamics: evidence from a time-varying dynamic factor model

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