Inflation and Globalisation: A Dynamic Factor Model with Stochastic Volatility

Joseph Paul Byrne, Fatima Kaneez, Alexandros Kontonikas

Research output: Working paperDiscussion paper

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Abstract

National inflation rates reflect domestic and international (regional and global) influences. The relative importance of these components remains a controversial empirical issue. We extend the literature on inflation co-movement by utilising a dynamic factor model with stochastic volatility to account for shifts in the variance of inflation and endogenously determined regional groupings. We find that most of inflation variability is explained by the country specific disturbance term. Nevertheless, the contribution of the global component in explaining industrialised countries’ inflation rates has increased over time.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity Of Glasgow
Publication statusPublished - 11 Jan 2010

Publication series

NameEconomics Working Papers
No.2010_09

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