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    Bank of Finland, Rauhankatu 19 B, Helsinki

Aleksandra Zhivaykina (Central Bank of Russia): The role of global relative price changes in international comovement of inflation

Co-author: Aleksei Kiselev (Central Bank of Russia)


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 foods and manufactured goods, global relative price changes may account for up to 45% 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.


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