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The role of global relative price changes in international comovement of inflation

Author

Listed:
  • Aleksei Kiselev

    (Bank of Russia, Russian Federation)

  • Aleksandra Zhivaykina

    (Bank of Russia, Russian Federation)

Abstract

In this paper we investigate the impact of global relative price changes on domestic inflation. We use a dynamic hierarchical factor model (DHFM) to decompose consumer basket products’ inflation in a panel of countries into (i) a global factor, common to all price series and all countries, (ii) a price change shock at product group level, (iii) a price change shock at product subgroup level, and (iv) an idiosyncratic component. Using monthly data for 29 economies from 2003 to 2018 we find that product inflation rates demonstrate different sensitivity to common price shocks. For energy, some food and manufactured goods, global relative price changes may account for up to 49% of inflation variation which is quite high for this frequency and level of disaggregation. Moreover, common factors from the DHFM have significant explanatory power for overall CPI and its aggregate components across different countries.

Suggested Citation

  • Aleksei Kiselev & Aleksandra Zhivaykina, 2019. "The role of global relative price changes in international comovement of inflation," Bank of Russia Working Paper Series wps53, Bank of Russia.
    • Handle: RePEc:bkr:wpaper:wps53
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    References listed on IDEAS

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    Cited by:

    1. Simola, Heli, 2019. "Effects of external shocks on Russian economy," BOFIT Policy Briefs 4/2019, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    Keywords

    Dynamic hierarchical factor model; global inflation; relative prices; Russia;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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