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© 2022 International Monetary Fund
WP/22/166
IMF Working Paper
European Department
Mind the Gap: City-Level Inflation Synchronization
Prepared by Serhan Cevik1
Authorized for distribution by Alfredo Cuevas
September 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
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.
| ISBN | 978–1-51358-###-# (Paper) 978–1-51358-###-# (ePub) 978–1-51358-###-# (PDF) |
| JEL Classification Numbers: | C13; C21; C22; E31 |
| Keywords: | Inflation synchronization; subnational; transition economies; Lithuania |
| Author’s E-Mail Address: | scevik@imf.org |
| ISBN | 978–1-51358-###-# (Paper) 978–1-51358-###-# (ePub) 978–1-51358-###-# (PDF) |
| JEL Classification Numbers: | C13; C21; C22; E31 |
| Keywords: | Inflation synchronization; subnational; transition economies; Lithuania |
| Author’s E-Mail Address: | scevik@imf.org |
The author would like to thank Patrick Blagrave, Borja Gracia, Jan Strasky, Robin Tietz, and the participants of seminars at the Bank of Lithuania and the European Department of the International Monetary Fund (IMF) for their insightful comments and suggestions, and Sadhna Naik for excellent research assistance.