International factors and inflation risks

Ignacio Garrón, Vladimir Rodríguez-Caballero and Esther Ruiz

International Journal of Forecasting, 2026, vol. 42, issue 3, 889-908

Abstract: Assessing the risks of having either very low or very high inflation is crucial for policymakers, businesses, and householders. In a globalised world, these risks are increasingly determined by international conditions. In this paper, we empirically analyse the impact of international inflation factors on forecasting monthly domestic inflation risks in a large number of economies observed worldwide from 1999 to 2022. Risk forecasts are obtained using factor-augmented quantile regressions estimated with international factors extracted from a multi-level dynamic factor model with overlapping blocks of inflations corresponding to economies grouped either in a given geographical region or according to their development level. We conclude that in a large number of countries, international factors are relevant to explain the right tail of the distribution of inflation, and consequently they are more relevant for the risk related to high inflation than for low inflation. The role of international factors is stronger in developed European countries, while the inflation risks of low-income developing countries are hardly affected by international conditions, and the results for middle-income countries are mixed. We also show that the predictive power of international factors has increased in the most recent years of high inflation.

Keywords: Density forecast; Factor-Augmented Quantile Regression; Global inflation; Inflation density; Multi-level dynamic factor model (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:42:y:2026:i:3:p:889-908

DOI: 10.1016/j.ijforecast.2025.12.003

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