How Local is the Local Inflation Factor? Evidence from Emerging European Countries

Oguzhan Cepni and Michael Clements

No 8-2021, Working Papers from Copenhagen Business School, Department of Economics

Abstract: We consider whether inflation is a ‘global phenomenon’ for European emerging market economies, as has been claimed for advanced or high-income countries. We find that a global inflation factor accounts for more than a half of the variance in the national inflation rates, and show that forecasting models of national headline inflation rates that include global inflation factors generally produce more accurate path forecasts than Phillips Curve-type models, and models with local inflation factors. Our results are qualitatively unaffected by allowing for sparsity and non-linearity in the factor forecasting models.

Keywords: Global inflation; Common factors; Forecasting; Variable selection (search for similar items in EconPapers)
JEL-codes: E31 E52 F42 F62 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2021-03-18
New Economics Papers: this item is included in nep-cba and nep-mac
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Journal Article: How local is the local inflation factor? Evidence from emerging European countries (2024)
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