Is nature of inflation co-movement time-varying? Insights from a dynamic factor model

Saban Nazlioglu, Tugba Akin, Sinem Pinar Gurel and Sevcan Gunes

Economics Letters, 2025, vol. 247, issue C

Abstract: The purpose of this study is to examine whether inflation co-movement has a time-varying behavior. We estimate a dynamic factor model with time-varying variances and obtain variance decomposition for G7 countries from 1970 to 2023. The results reveal that (i) inflation co-movement tends to change with global shocks, with a more synchronized pattern during global financial crisis and COVID-19; and (ii) it tends to cluster across countries after COVID-19, with an increase in US, Canada, and Japan and a decrease in European countries (France, Germany, Italy, and UK). These findings hence provide new insights on time-varying inflation co-movement.

Keywords: Inflation; Time-varying co-movement; Dynamic factor model; State-space method (search for similar items in EconPapers)
JEL-codes: C33 C38 E31 E50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000527

DOI: 10.1016/j.econlet.2025.112215

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