Exploring international differences in inflation dynamics

Yamin Ahmad and Staveley-O’Carroll, Olena M.
Authors registered in the RePEc Author Service: Olena Staveley-O'Carroll ()

Journal of International Money and Finance, 2017, vol. 79, issue C, 115-135

Abstract: Standard closed-economy DSGE models have difficulty replicating the persistence of inflation. We use a multicountry dataset to establish some empirical regularities on persistence and volatility of aggregate consumer prices for 135 countries since 1993. We find both persistence and volatility to be low (high) in developed (developing) countries relative to the full sample average. This pattern is also observed in low (high) inflation countries. We then employ a two-country DSGE framework to investigate the extent to which structural open economy features, such as incomplete exchange rate pass-through, the existence of nontraded goods, and international financial market incompleteness, can help in replicating the persistence and volatility of consumer prices. Our simulation results indicate that the model can replicate the degree of inflation persistence seen in the data for both developed and developing countries, but cannot generate the low levels of volatility observed in developed economies.

Keywords: Inflation dynamics; Persistence; Volatility; DSGE modeling; Simulations (search for similar items in EconPapers)
JEL-codes: C22 E31 F41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560617301717
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Exploring International Differences in Inflation Dynamics (2017)
Working Paper: Exploring International Differences in Inflation Dynamics (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:79:y:2017:i:c:p:115-135

DOI: 10.1016/j.jimonfin.2017.09.002

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().