Inflation and Globalisation: A Dynamic Factor Model with Stochastic Volatility

Joseph Byrne, Fatima Kaneez and Alexandros Kontonikas ()

Working Papers from Business School - Economics, University of Glasgow

Abstract: National inflation rates reflect domestic and international (regional and global) influences. The relative importance of these components remains a controversial empirical issue. We extend the literature on inflation co-movement by utilising a dynamic factor model with stochastic volatility to account for shifts in the variance of inflation and endogenously determined regional groupings. We find that most of inflation variability is explained by the country specific disturbance term. Nevertheless, the contribution of the global component in explaining industrialised countries’ inflation rates has increased over time.

Keywords: Inflation; Dynamic Factor Model; Stochastic Volatility; Globalisation (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-cba and nep-mon
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Citations: View citations in EconPapers (1)

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Working Paper: IInflation and Globalisation: A Dynamic Factor Model with Stochastic Volatility (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2010_09

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