All together now: Do international factors explain relative price co-movements?

Ozer Karagedikli, Haroon Mumtaz and Misa Tanaka

No DP2010/02, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: Recent research has found evidence of increasing co-movement in CPI inflation rates across industrialised countries. This paper considers whether this increased international co-movement in inflation rates can be attributed to greater global integration of product markets. To examine this question, we use a data set of 28 matched product category price indices for 14 advanced economies for 1998Q1 - 2008Q2, and decompose the inflation rates into a world factor, country-specific factors, and category-specific factors using a Bayesian dynamic factor model with Gibbs sampling. We find that the category-specific factors account for a large part of the co-movement in the prices of goods which are intensive in internationally traded primary commodities; but this is less evident for other traded goods. We also find that both the world factor and the category-specific factors become more significant in explaining the movement in the relative prices in the second half of our sample.

JEL-codes: E30 E52 (search for similar items in EconPapers)
Pages: 32 p
Date: 2010-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: All together now: do international factors explain relative price comovements? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2010/02

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