The Global Component of Inflation Volatility

72 Pages Posted: 14 May 2018

See all articles by Andrea Carriero

Andrea Carriero

Queen Mary, University of London

Francesco Corsello

Bank of Italy

Massimiliano Giuseppe Marcellino

Bocconi University - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: May 3, 2018


Global developments play an important role in domestic inflation rates. Previous literature has found that a substantial amount of the variation in a large set of national inflation rates can be explained by a single global factor. However, inflation volatility has been typically neglected, while it is clearly relevant both from a policy point of view and for structural analysis and forecasting purposes. We study the evolution of inflation rates in several countries, using a novel model that allows for commonality in both levels and volatilities, in addition to country-specific components. We find that inflation stochastic volatility is indeed important, and a substantial share of it can be attributed to a global factor that also drives the levels and persistence of inflation. While various phenomena may contribute to global inflation dynamics, it turns out that since the early 1990s, the estimated global factor is correlated with China’s PPI and with oil inflation levels and volatilities. The extent of commonality among core inflation rates and volatilities is substantially smaller than for overall inflation, which leaves scope for national monetary policies.

Keywords: inflation, volatility, global factors, large datasets, multivariate autoregressive index models, reduced rank regressions, forecasting

JEL Classification: E31, F62, C32, E37, C53

Suggested Citation

Carriero, Andrea and Corsello, Francesco and Marcellino, Massimiliano, The Global Component of Inflation Volatility (May 3, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1170, Available at SSRN: or

Andrea Carriero

Queen Mary, University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Francesco Corsello (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Massimiliano Marcellino

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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