Regional inflation dynamics using space-time models Articles uri icon

authors

  • MARQUES, H.
  • PINO, G
  • TENA HORRILLO, JUAN DE DIOS

publication date

  • November 2014

start page

  • 1147

end page

  • 1172

issue

  • 3

volume

  • 47

international standard serial number (ISSN)

  • 0377-7332

electronic international standard serial number (EISSN)

  • 1435-8921

abstract

  • This article provides empirical evidence of the role of spatial factors on the determination of inflation dynamics for a representative set of tradable commodities in Chile. We present a simple model that explains inflation divergence across regions in a monetary union with similar preferences as a consequence of the geographical allocation of producers in the different regions. Our results indicate that spatial allocation together with transport costs are important determinants of regional inflation, while macroeconomic common factors do not play an important role in this process. Existing literature had obtained the opposite result for Europe, and the reasons for this difference warrant further investigation. Moreover, we find that geographical distance seems to be a more appropriate measure of neighbourhood than the adjacency of regions. Our results are robust to different specifications, regression methods and product groupings.

keywords

  • regional inflation dynamics; space-time models; common factors; chile