Evolving International Inflation Dynamics: Evidence from a Time-Varying Dynamic Factor Model

27 Pages Posted: 31 Mar 2008

See all articles by Haroon Mumtaz

Haroon Mumtaz

University of London - School of Sciences

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

Several industrialised countries have had a similar inflation experience in the past 30 years, with inflation high and volatile in the 1970s and the 1980s but low and stable in the most recent period. We explore the dynamics of inflation in these countries via a time-varying factor model. This statistical model is used to describe movements in inflation that are idiosyncratic or country specific and those that are common across countries. In addition, we investigate how comovement has varied across the sample period. Our results indicate that there has been a decline in the level, persistence and volatility of inflation across our sample of industrialised countries. In addition, there has been a change in the degree of comovement, with the level and persistence of national inflation rates moving more closely together since the mid-1980s.

Keywords: low inflation, factor model, time variation, monetary policy

JEL Classification: E30, E52

Suggested Citation

Mumtaz, Haroon and Surico, Paolo, Evolving International Inflation Dynamics: Evidence from a Time-Varying Dynamic Factor Model (February 2008). Bank of England Working Paper No. 341. Available at SSRN: https://ssrn.com/abstract=1114074 or http://dx.doi.org/10.2139/ssrn.1114074

Haroon Mumtaz (Contact Author)

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Paolo Surico

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

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