Title: Inflation comovements in advanced economies
Authors: Luis J Alvarez - Bank of Spain (Spain) [presenting]
Lola Gadea - University of Zaragoza (Spain)
Ana Gomez-Loscos - Bank of Spain (Spain)
Abstract: Although there is a vast literature on GDP comovement across countries, there is scant evidence on inflation comovements. To fill this gap we use a dataset on consumer price inflation that takes into account heterogeneity in price developments. We consider not headline inflation and also, but also core measures, energy and food prices. We analyze comovements across all advanced economies and across euro area countries. Synchronization is measured using the Moran-Stock-Watson spatial correlation index. We find that inflation comovements among advanced economies are quite relevant, but smaller than for GDP. Inflation comovements among euro area countries are higher than for advanced economies as a whole. Comovements have tended to increase over time, possibly reflecting the role of growing trade integration and the role of a common euro area monetary policy. Comovements among countries are highest for the energy component and lowest for core prices. We also consider bandpass filtered series to take into account that inflation has different drivers across frequency bands. We find that for high frequencies the degree of comovement is fairly low, whereas it is highest for the medium run, when the Phillips curve mechanism is expected to be strongest. Trend inflation also shows a sizable degree of comovememt, although it is lower than for long-run GDP fluctuations.