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The paper studies the extent of global inflation synchronization using a dynamic factor model in a large set of countries over a half century. The authors' methodology allows them to account for differences across groups of countries (advanced economies and emerging market and developing economies) and to analyze commonalities in inflation synchronization across a wide range of inflation measures. The paper reports three major results. First, inflation movements have become increasingly synchronized internationally over time: a common global factor has accounted for about 22 percent of variation in national inflation rates since 2001. Second, inflation synchronization has also become more broad-based: while it was previously much more pronounced among advanced economies than among emerging market and developing economies, it has become substantial in both groups over the past two decades. In addition, inflation synchronization has become significant across all inflation measures since 2001, whereas it was previously prominent only for inflation measures that included mostly tradable goods.

Advanced Economies --- Developing Economies --- Dynamic Factor Model --- Emerging Markets --- Finance and Financial Sector Development --- Financial Structures --- Global Inflation --- Inflation --- International Economics and Trade --- International Trade and Trade Rules --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Synchronization

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The fiscal position can affect fiscal multipliers through two channels. Through the Ricardian channel, households reduce consumption in anticipation of future fiscal adjustments when fiscal stimulus is implemented from a weak fiscal position. Through the interest rate channel, fiscal stimulus from a weak fiscal position heightens investors' concerns about sovereign credit risk, raises economy-wide borrowing cost, and reduces private domestic demand. The paper documents empirically the relevance of these two channels using an Interactive Panel Vector Auto Regression model. It finds that fiscal multipliers tend to be smaller when fiscal positions are weak than strong.

Business Cycle --- Economic Adjustment and Lending --- Economic Policy, Institutions and Governance --- Finance and Financial Sector Development --- Financial Crisis Management and Restructuring --- Fiscal and Monetary Policy --- Fiscal Multipliers --- Fiscal Position --- Interest Rate Channel --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Public Sector Development --- Ricardian Channel --- State-Dependency

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In the past four to five decades, inflation has fallen around the world, with median annual global consumer price inflation down from a peak of 16.6 percent in 1974 to 2.6 percent in 2017. This decline began in advanced economies in the mid-1980s and in emerging market and developing economies in the mid-1990s. By 2000, global inflation had stabilized at historically low levels. Lower inflation has been accompanied by reduced inflation volatility, especially in advanced economies. This improvement in inflation outcomes has stemmed in large part from structural economic changes, including improved monetary and fiscal policy frameworks as well as international trade and financial liberalization. Lower and more stable inflation has often been associated with better growth and development outcomes, partly by reducing uncertainty, fostering a more efficient allocation of resources, and helping preserve financial stability.

Deflation --- Economic Integration --- Empirical Studies of Trade --- Inflation --- Macroeconomics and Economic Growth --- Monetary Policy --- Monetary Systems --- Prices