Title: Sources of inflation comovements
Authors: Karol Szafranek - Warsaw School of Economics (Szkola Glowna Handlowa w Warszawie) (Poland) [presenting]
Abstract: The principal aim is to unravel the evolution of the inflation co-movements between economies and to quantify the sources of these fluctuations. To this end, in the first step a dynamic conditional correlation model is estimated enabling the quantification of the evolving CPI inflation correlation between countries in time. In the second step a Bayesian structural vector autoregression model is proposed to explain the variability of the estimated inflation correlation between country's inflation rate and global inflation. Preliminary results for the small open economy of Poland suggest that an increase in risk aversion and divergences in monetary policy decrease correlation of inflation, while an increase in the volatility of oil prices and country's openness increase this dependency measure. The influence of the business cycle synchronization index remains ambiguous.