IMF Working Papers

Mind the Gap: City-Level Inflation Synchronization

Author/Editor:

Serhan Cevik

Publication Date:

September 2, 2022

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

The post-pandemic rise in consumer prices across the world has renewed interest in inflation dynamics after decades of global disinflation. This paper provides a spatial investigation of inflation synchronicity at the city level in Lithuania using disaggregated monthly data during the period 2000–2021. The empirical analysis provides strong evidence that (i) the co-movement of city-level inflation rates—estimated using the instantaneous quasi-correlation approach—is significantly weaker than the extent of synchronization suggested by the simple correlation analysis; (ii) there is substantial heterogeneity in the instantaneous quasi-correlation of inflation subcomponents between city pairs; and (iii) there are significant changes in the degree of city-level synchronization over time, reflecting important economic developments in history such as the global financial crisis, the adoption of euro, and the COVID-19 pandemic.

Series:

Working Paper No. 2022/166

Frequency:

regular