DP15914 International Co-movements of Inflation, 1851-1913

Author(s): Stefan Gerlach, Rebecca Stuart
Publication Date: March 2021
Keyword(s): Factor Analysis, gold standard, international inflation, principal components
JEL(s): E31, F40, N10
Programme Areas: Economic History, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15914

We study co-movements of inflation in a group of 15 countries before and during the classical Gold Standard by fitting a generalisation of the Ciccarelli-Mojon (2010) model on annual data spanning 1851-1913. We find that international inflation functions as an "attractor" for domestic inflation rates. The cross-sectional dispersion of inflation declined gradually over the sample and Bai-Perron tests for structural breaks at unknown points in time suggest that there are breaks in six of reduced-form inflation equations. However, sub-sample estimates indicate that the overall finding that international inflation is an important influence on domestic inflation.