Open Economies Review

, Volume 25, Issue 5, pp 841–863 | Cite as

Reconsidering the International Comovement of Inflation

Research Article


In this paper we reconsider the degree of international comovement of inflation rates. We use a dynamic hierarchical factor model that is able to decompose Consumer Price Index (CPI) inflation in a panel of countries into (i) a factor common to all inflation series and all countries, (ii) a factor specific to a given sub-section of the CPI, (iii) a country group-factor and (iv) a country-specific component. With its pyramidal structure, the model allows for the possibility that the global factor affects the country-group factor and other subordinated factors but not vice versa. Using quarterly data for industrialized and emerging economies from 1996 to 2011 we find that about two thirds of overall inflation volatility is due to country-specific determinants. For CPI inflation net of food and energy, the global factor and the CPI basket-specific factor account for less than 20 % of inflation variation. Only energy price inflation in industrial economies is dominated by common factors.


Inflation Energy prices Monetary policy Globalization Dynamic hierarchical factor model 

JEL Classifications

E31 E32 F44 



We thank the editor and two anonymous referees for very helpful comments.


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsJustus Liebig University GiessenGiessenGermany

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