http://www.rba.gov.au/rss/index.html Research Discussion Papers contain the results of economic research within the Reserve Bank. They are issued throughout the year, with summaries periodically reproduced in the Bulletin. The views expressed in them are those of the authors and do not necessarily reflect the views of the Reserve Bank of Australia. 2012-04-04T14:00:00+10:00 Reserve Bank of Australia en http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-01.pdf Inflation rates across countries tend to exhibit a degree of co-movement. In this paper we use a panel vector autoregression (panel VAR) model to investigate possible explanations of this co-movement for the G7 economies. Shocks to commodity prices are found to be more important than common movements in real activity as a driver of ‘global inflation’ dynamics. However, commodity prices and common real activity cannot explain all of the co-movement in inflation. Even when controlling for these factors, a common indicator of inflation still offers explanatory power for domestic inflation in the panel VAR. Given the role of global inflation in explaining inflation in the G7 countries, we then consider the significance of global inflation for Australian inflation. We find that movements in international inflation offer useful information when included in models of Australian inflation, particularly headline inflation. 2012-04-04T14:00:00+10:00 Co-movement in Inflation 2012-04-04 global inflation panel VAR factor models Bayesian estimation Co-movement in Inflation http://www.rba.gov.au/publications/rdp/2012/pdf/rdp2012-01.pdf PDF version James Hansen James Hansen December 2011 Reserve Bank of Australia Research Discussion Papers RDP2011-06 C33 E31 E32 F44