Reconsidering the International Comovement of Inflation

Förster, Marcel; Tillmann, Peter

doi:10.1007/s11079-014-9312-1

Cited by 32 publications

(15 citation statements)

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“…Differences are, however, unlikely to be significant since confidence bands will overlap. We nevertheless believe that accounting for factors which only load on subsets of our large global dataset is a promising route to follow in future work (see, for example, Aastveit et al (2012) and Foerster and Tillmann (2013) for insightful applications of such approaches in the global inflation context).…”

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confidence: 99%

China's Role in Global Inflation Dynamics

Eickmeier

Kühnlenz

2016

Macroecon. Dynam.

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Reproduction permitted only if source is stated. 91-3 (Printversion) Non-technical summaryThe global dimension of inflation has become a popular theme for economic researchers in academia and central banks. It has been shown that inflation rates across countries strongly comove due to domestic inflation rates being determined, among others, by foreign or global common forces. China's role in these developments is, however, still somewhat unclear.The significance of China for the world economy has risen enormously over the past 20 years in terms of both GDP and trade. Observers have speculated whether (positive) demand effects in China and subsequent positive effects on international price developments (via rising export and commodity prices) or whether supply effects and subsequent price dampening effects (via declining import prices and competitive pressures) have dominated in the past and, hence, what the net effect of these developments was. The goal of this analysis is to examine empirically the role of Chinese supply and demand shocks in global inflation dynamics and to shed light on the transmission mechanism.We apply a structural dynamic factor model to a large quarterly dataset of 38 countries (including China) between 2002 and 2011 to analyze China's role in global inflation dynamics. We identify Chinese supply and demand shocks and examine their contributions to global price dynamics and the transmission mechanism. Our main findings are as follows. (i) Chinese supply and demand shocks affect prices in other countries significantly. Demand shocks matter slightly more over the sample period than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share explained of international inflation by Chinese shocks is notable (about 5 percent on average over all countries but not more than 13 percent in each region). (ii) Both direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) seem to matter. (iii) Differences in trade exposure (overall and with China) as well as commodity exposure help explaining cross-country differences in price responses. Demand shocks matter slightly more than supply shocks. Producer prices tend to be more strongly affected than consumer prices by Chinese shocks. The overall share of international inflation explained by Chinese shocks is notable (about 5 percent on average over all countries but not more than 13 percent in each region); (ii) Direct channels (via import and export prices) and indirect channels (via greater exposure to foreign competition and commodity prices) seem both to matter; (iii) Differences in trade (overall and with China) and in commodity exposure help explaining crosscountry differences in price responses. Nicht-technische ZusammenfassungJEL classification: F41, E31, C3

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confidence: 99%

China's Role in Global Inflation Dynamics

Eickmeier

Kühnlenz

2016

Macroecon. Dynam.

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“…However, examining sub-components of inflation, Förster and Tillmann (2014) show that two thirds of overall inflation volatility can be explained by country-specific determinants, and that this ratio is even higher for CPI net of food and energy-their findings indicate that only energy price inflation in advanced economies is driven to an important degree by common factors.…”

Section: Introductionmentioning

confidence: 95%

Inflation Co-Movement in Emerging and Developing Asia

Blagrave¹

2019

IMF Working Papers

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Co-movement (synchronicity) in inflation rates among a set of 13 emerging and developing countries in Asia is shown to be strongest for the food component, partly due to common rainfall shocks—a result which the paper terms the ‘monsoon effect.’ Economies with higher trade integration and co-movement in nominal effective exchange rates also experience greater food-inflation co-movement. By contrast, cross-country co-movement in core inflation is weak and the aforementioned determinants have little explanatory power, suggesting a prominent role for idiosyncratic domestic factors in driving core inflation. In the context of the growing literature on the globalization of inflation, these results suggest that common weather patterns are partly responsible for any role played by a so-called ‘global factor’ among inflation rates in emerging and developing economies, in Asia at least.

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“…For all frequency bands, food prices comove more than core ones, but less than energy ones. 19 4 Robustness analysis…”

Section: Interdependence Across Frequency Bandsmentioning

confidence: 99%

“…Even though, as discussed above, there are many theoretical channels that explain inflation interdependence, the evidence on the synchronization of inflation dynamics is very limited, in 2 See, for instance, Kose et al (2008) or de Haan et al (2008). 3 Other contributions include Neely and Rapach (2011), Mumtaz and Surico (2012) or Forster and Tillmann (2014). Carriero et al (2018) analyze the global component of inflation volatility.…”

Section: Introductionmentioning

confidence: 99%