All together now: do international factors explain relative price comovements?

Summary of Working Paper no. 381 is presented. Recent research has found that a common component explains a greater proportion of quarterly inflation movements in industrialized countries after the mid-1980s relative to the period before that. This paper examines the extent to which the increased comovement in inflation rates across countries can be attributed to greater global integration of product markets by using a statistical approach to decompose fluctuations in quarterly inflation rates into a world factor, country-specific factors, and category-specific factors. If it is indeed the adoption of similar monetary policy rather than global integration of product markets that is driving the international comovement in inflation rates, then the authors should not find any evidence for comovement in product category inflation rates.