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Inflation interdependence in advanced economies

Luis Alvarez, Ana Gómez-Loscos () and María Gadea ()

No 1920, Working Papers from Banco de España, Working Papers Homepage

Abstract: Although there is a vast literature on GDP comovement across countries, there is scant evidence on inflation interdependence. We analyze inflation comovements across a wide set of advanced economies and across the subset of euro area countries. Some of our findings are expected, such as the fact that inflation interdependence among advanced economies is quite relevant, but is higher among euro area countries, which show strong trade links and a share common monetary policy, or the fact that inflation synchronization among countries is highest for energy prices, reflecting common oil shocks. We also find a robust puzzle: core inflation interdependence is fairly low and this result holds for both core goods and services. Inflation synchronization seems to be particularly linked to comovements in driving variables of open economy new Keynesian Phillips curve and mark-up pricing models.

Keywords: inflation; synchronization; filtering; price heterogeneity; trend inflation (search for similar items in EconPapers)
JEL-codes: E31 E32 C50 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019-06
New Economics Papers: this item is included in nep-eec and nep-mac
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