The role of global relative price changes in international comovement of inflation

Aleksei Kiselev () and Aleksandra Sterkhova (Zhivaykina)
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Aleksei Kiselev: Bank of Russia, Russian Federation

No wps53, Bank of Russia Working Paper Series from Bank of Russia

Abstract: In this paper we investigate the impact of global relative price changes on domestic inflation. We use a dynamic hierarchical factor model (DHFM) to decompose consumer basket products’ inflation in a panel of countries into (i) a global factor, common to all price series and all countries, (ii) a price change shock at product group level, (iii) a price change shock at product subgroup level, and (iv) an idiosyncratic component. Using monthly data for 29 economies from 2003 to 2018 we find that product inflation rates demonstrate different sensitivity to common price shocks. For energy, some food and manufactured goods, global relative price changes may account for up to 49% of inflation variation which is quite high for this frequency and level of disaggregation. Moreover, common factors from the DHFM have significant explanatory power for overall CPI and its aggregate components across different countries.

Keywords: Dynamic hierarchical factor model; global inflation; relative prices; Russia (search for similar items in EconPapers)
JEL-codes: C38 E31 F42 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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