Global Inflation

48 Pages Posted: 10 Nov 2005

See all articles by Matteo Ciccarelli

Matteo Ciccarelli

European Central Bank (ECB)

Benoit Mojon

Banque de France

Date Written: April 2008


This paper shows that inflation in industrialized countries is largely a global phenomenon. First, the inflation rates of 22 OECD countries have a common factor that alone accounts for nearly 70 percent of their variance. This large variance share that is associated with Global Inflation is not only due to the trend components of inflation (up from 1960 to 1980 and down thereafter) but also to fluctuations at business cycle frequencies. Second, we show that, in conformity to the prediction of New Keynesian open economy models, there is little spillover of inflationary shocks across countries. The co-movement of inflation comes largely from common shocks. Global Inflation is a function of real developments at short horizons and monetary developments at longer horizons. Third, there is a robust "error correction mechanism" that brings national inflation rates back to Global Inflation. A simple model that accounts for this feature consistently beats the previous benchmarks used to forecast inflation 4 to 8 quarters ahead across samples and countries.

Keywords: global Inflation, common factor, international business cycle

JEL Classification: E31, E37, F42

Suggested Citation

Ciccarelli, Matteo and Mojon, Benoit, Global Inflation (April 2008). ECB Working Paper No. 537, FRB of Chicago Working Paper No. 2008-05, Available at SSRN: or

Matteo Ciccarelli (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Benoit Mojon

Banque de France ( email )


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