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Working Paper 2008-025D Search | View by Year | View by Category | View by Author | View by JEL Code"International Comovements in Inflation Rates and Country Characteristics"
Common shocks, similarities in central bank reaction functions, and international trade potentially produce common components in international inflation rates. This paper characterizes such links in international inflation rates with a dynamic latent factor model that decomposes 65 national inflation rates into world, regional, and idiosyncratic components. The world and regional components account for 34% and 16%, respectively, of annual inflation variability on average across countries. That is, international influences together explain half of inflation variability. The importance of the world and regional components, however, differs substantially across countries. Economic policy choices and development measures strongly explain the cross-section variation in the relative importance of international influences. A parsimonious model of time variation in the factor loadings shows that most countries became more sensitive to the world factor over 1951–2006 and European-specific influences became more important over time for countries participating in European economic integration. Full Text - Acrobat PDF (252k) Notify Me of Updates for:
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