Global Inflation, Regional Factors

Viacheslav Sheremirov and Hillary Stein

No 25-6, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper shows that global inflation dynamics have a sizable regional component. Using a balanced panel of 61 countries that starts in 1970, we document that while the global factor, defined as the dominant principal component, explains a large portion of inflation variation in advanced economies, a model with only one principal component is less successful for developing countries. By contrast, a hierarchical dynamic factor model, which includes a global (unconstrained) factor and regional (restricted) factors, performs substantially better for emerging market and developing economies. The regional factors are linked to commodity prices and help improve the accuracy of inflation forecasts at the country level. Employing an unsupervised machine-learning technique, we show that the estimated clusters of countries, grouped according to similarities in inflation dynamics, exhibit a strong regional pattern. Our findings suggest that policymakers in developing countries should pay close attention to inflation dynamics in their neighboring countries.

Keywords: clustering; developing countries; globalization; inflation (search for similar items in EconPapers)
JEL-codes: E3 E5 F4 F6 (search for similar items in EconPapers)
Pages: 63
Date: 2025-08-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bostonfed.org/publications/research-de ... egional-factors.aspx Summary (text/html)
https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/2025/WP2506.pdf Full text (application/pdf)

Related works:
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:fip:fedbwp:101461

Ordering information: This working paper can be ordered from

DOI: 10.29412/res.wp.2025.06

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().