The Elusive Predictive Ability of Global Inflation

In this paper we analyze the contribution of international measures of inflation to predict local ones. To that end, we consider the set of current thirty one OECD economies for which inflation data is available at a monthly frequency. By considering this set of countries, a span of time including the post-crisis period and measures of both core and headline inflation, we are extending in three important dimensions the previous literature on this topic. Our main results indicate that on average there is a non-negligible predictive pass-through from international to local inflation both at the core and headline levels. This predictive pass-through has increased in the last period of our sample. Nevertheless, there is heterogeneity in the size and statistical significance of this pass-through which is especially important at the core level. Finally, important reductions in the Root Mean Squared Prediction Error are obtained only for a handful of countries