Inflation Comovements In Advanced Economies: Facts And Drivers*
WORLD ECONOMY(2021)
Abstract
In this paper, we analyse inflation comovements and their macroeconomic drivers across a wide set of advanced economies. We find a high degree of inflation interdependence, which is highest for euro area countries, which show strong trade links and share a common monetary policy. In contrast, core inflation interdependence is very limited. We also find that inflation interconnectedness is a medium- to long-run phenomenon. Inflation comovements across countries are well explained by an open economy new Keynesian Phillips curve.
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Key words
filtering, inflation, price heterogeneity, synchronisation, trend inflation
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