Inflation Co-Movement Dynamics: A Cross-Country Investigation Using a Continuous Wavelet Approach

Aviral Tiwari, Emmanuel Abakah, Luis Gil-Alana and Moses Kenneth Abakah
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Moses Kenneth Abakah: Economic and Risk Analysis Department, Central Securities Depository Ghana Limited, Accra 00233, Ghana

JRFM, 2021, vol. 14, issue 12, 1-43

Abstract: The economic literature provides evidence that inflation rates can co-move across nations because of a host of reasons, ranging from low frequency changes in monetary policy to similar high frequency shocks. Hence, this paper investigates inflation rate co-movements between nine (9) African countries and their bilateral linkages with five (5) developed economies using continuous wavelets at different time scales or frequencies. Specifically, we examine the coherency and the phase relationship in time-frequency space in inflation rates of the selected countries. Several findings are documented. First, inflation rates co-movements in the nine African countries are time varying, multi-scale, and characterized by structural breaks. In addition, we find that inflation co-movements across countries in the Africa sub-region is weak at low frequencies. Furthermore, we find evidence of inflation co-movement between Africa and developed economies, suggesting that central banks and policy-makers in Africa need to monitor international price developments, and analyze their implications for their domestic economies. Second, we find that inflation rates in the selected African countries explain, on average, almost 80% of their own inflation variance over the whole sample period. Spillover analysis reveals that China and Canada account for a greater percentage of inflation variation in Africa.

Keywords: inflation rates; co-movement; wavelets; time frequency; Africa (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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