Abstract
What affects inflation synchronization? To answer this question I employ a two-step approach. First, with the means of dynamic conditional correlations I quantify time-varying price co-movements. Second, I disentangle their sources using panel regressions on a heterogeneous sample of countries. Estimation results indicate that various factors affects inflation synchronization, both in time and across advanced, emerging and least developed economies. Price co-movements tend to strengthen along the unification of monetary policy frameworks, the falling independence of central banks and due to the unconventional monetary policy by the Federal Reserve. Large variations in oil prices affect markedly inflation synchronization, except for low-income countries for which changes in the degree of exchange rate rigidity, the level of inflation and country's development explain the bulk of the variation in price co-movements. Inflation synchronization also intensifies with rising trade tensions, especially in emerging economies, whereas for the UE economies increased synchronization in business cycles as well as recent disinflationary pressures also strengthen price co-movements to some extent.
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