Global Factors In Inflation and Interest Rates

International co-movements in inflation and interest rates have beenseparately documented by numerous empirical studies. In this study,we bridge the gap by investigating common natures that simultaneouslygenerate these international co-movements. To this end, we estimatea high-dimensional dynamic common factor model of national inflationrates and short- and long-term bond yields. The results based on 30OECD countries' data from the second quarter of 2002 to the fourth quarter of 2019 indicate two global factors that havelinked the two global macroeconomic co-movements for the past twodecades. One is the global real activity, and the other is the globalinflation fluctuations that are orthogonal to commodity prices. Wefind that the latter global factor is closely related to global liquidity