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<p>International co-movements in inflation and interest rates have been separately documented by numerous empirical studies. In this study, we bridge the gap by investigating common natures that simultaneously generate these international co-movements. To this end, we estimate a high-dimensional dynamic common factor model of national inflation rates and short- and long-term interest rates. The results based on 30 OECD countries’ data from the second quarter of 2002 to the fourth quarter of 2024 indicate two global factors that have linked the two global macroeconomic co-movements for the past two decades. One is the global real activity, and the other is the global inflation fluctuations that are orthogonal to commodity prices. We find that the latter global factor is closely related to global liquidity.</p>

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Global Factors in Inflation and Interest Rates

  • 期刊论文

  • 发表日期：

    2026年1月26日

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  • Sunho Lee,
  • Kyu Ho Kang

摘要

International co-movements in inflation and interest rates have been separately documented by numerous empirical studies. In this study, we bridge the gap by investigating common natures that simultaneously generate these international co-movements. To this end, we estimate a high-dimensional dynamic common factor model of national inflation rates and short- and long-term interest rates. The results based on 30 OECD countries’ data from the second quarter of 2002 to the fourth quarter of 2024 indicate two global factors that have linked the two global macroeconomic co-movements for the past two decades. One is the global real activity, and the other is the global inflation fluctuations that are orthogonal to commodity prices. We find that the latter global factor is closely related to global liquidity.