Template-Type: ReDIF-Paper 1.0
Author-Name: Aleksei Kiselev
Author-Email: Alkiselev@nes.ru

Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Aleksandra Zhivaykina
Author-Email: Zhivaykinaad@cbr.ru

Author-Workplace-Name: Bank of Russia, Russian Federation




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

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.


Length: 20 pages
Creation-Date: 2019-12
Revision-Date:
Publication-Status:
File-URL: http://cbr.ru/Content/Document/File/107527/wp-53_e.pdf
File-Format: Application/pdf
File-Function:
Number:wps53
Classification-JEL: C38, E31, F42
Keywords: Dynamic hierarchical factor model, global inflation, relative prices, Russia 
Handle:RePEc:bkr:wpaper:wps53