This study detects a structural break in international consumer price index (CPI) inflation comovement. We estimate the dynamic common factor models with unknown breakpoints of cross-country inflation rates and global price index of all commodities. We identify two global factors from the models: a commodity global factor and a noncommodity global factor. The former is a common factor between national inflation rates and commodity price index growth; the latter is a common factor among national inflation rates. The estimation of 29 countries’ quarterly CPI inflation data from 2001:Q1 to 2018:Q2 shows a one-time break in cross-country inflation dynamics in 2008:Q4. Thereafter, the importance of global factors in explaining the national inflation rates is remarkably increased. Furthermore, the increased global inflation synchronization is mainly driven by the larger role of the noncommodity global factor rather than that of the commodity global factor.

Global trade in the 21st century is characterised by complex value chains. Successful exporters usually rely on quality imports, and exported goods cross borders many times before reaching their final consumer. This poses challenges to economic measurement as well as policymaking because it becomes difficult to characterise the true interdependencies between countries. Currently, estimates of the share of imports from a trade partner destined for re-exports, and the share used in the domestic economy, are crude at best. We develop a novel approach to estimate these shares. Instead of assigning imports for re-exports proportionally across all source countries, we consider the origin of imports for each trader who re-exports goods. The method is illustrated for the Netherlands, a major re-exporter. We find that non-European member states export 10 billion euros of commodities to the Netherlands that are destined for re-export to the United Kingdom. We also find that the goods trade deficit between the Netherlands and the United States is drastically reduced when taking re-export flows into account.

A drop in net FDI investment income has been the primary factor in the recent deterioration in the measured UK current account balance, with the trade balance relatively stable. We argue that financial engineering (with little net impact on the underlying international investment position for the UK) may have contributed to the decline in net FDI investment income, such that the headline current account balance cannot be interpreted as a sufficient indicator of the state of the UK's external position. A more granular analysis of cross-border financial linkages than is possible with currently-published data would be required in order to provide a comprehensive assessment of external sustainability.