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Inflation persistence in Europe: the effects of the covid-19 pandemic and of the Russia-Ukraine war

Author

Listed:
  • Guglielmo Naria Caporale

    (Brunel University London)

  • Juan Infante

    (Universidad Villabueva)

  • Luis Gil-Alana

    (Universidad de Navarra)

  • Raquel Ayestaran

    (Universidad Francisco de Vitoria)

Abstract

This note analyses the possible effects of the Covid-19 pandemic and of the Russia-Ukraine war on the degree of inflation persistence in both the euro zone and the European Union as a whole (EU27). For this purpose a fractional integration model is estimated, first for the full sample and then using recursive and rolling methods. Although the two latter methods provide evidence of a significant increase in inflation persistence (at least in the case of the EU27, for which in addition to jumps an upward trend is clearly identifiable), the full-sample results imply long-lasting but only temporary effects of the two shocks being examined. These findings suggest that the required policy response to both shocks should also have a temporary nature. This note analyses the possible effects of the Covid-19 pandemic and of the Russia-Ukraine war on the degree of inflation persistence in both the euro zone and the European Union as a whole (EU27). For this purpose a fractional integration model is estimated, first for the full sample and then using recursive and rolling methods. Although the two latter methods provide evidence of a significant increase in inflation persistence (at least in the case of the EU27, for which in addition to jumps an upward trend is clearly identifiable), the full-sample results imply long-lasting but only temporary effects of the two shocks being examined. These findings suggest that the required policy response to both shocks should also have a temporary nature.

Suggested Citation

  • Guglielmo Naria Caporale & Juan Infante & Luis Gil-Alana & Raquel Ayestaran, 2023. "Inflation persistence in Europe: the effects of the covid-19 pandemic and of the Russia-Ukraine war," Economics Bulletin, AccessEcon, vol. 43(1), pages 137-145.
    • Handle: RePEc:ebl:ecbull:eb-22-00789
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    References listed on IDEAS

    as
    1. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238.
    2. Osborn, Denise R, et al, 1988. "Seasonality and the Order of Integration for Consumption," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(4), pages 361-377, November.
    3. Luis A. Gil‐Alana, 2008. "Fractional integration and structural breaks at unknown periods of time," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(1), pages 163-185, January.
    4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    5. Armantier, Olivier & Koşar, Gizem & Pomerantz, Rachel & Skandalis, Daphné & Smith, Kyle & Topa, Giorgio & van der Klaauw, Wilbert, 2021. "How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 443-469.
    6. Alberto Cavallo, 2020. "Inflation with Covid Consumption Baskets," NBER Working Papers 27352, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Inflation persistence; fractional integration; recursive estimation; Covid-19 pandemic; Russia-Ukraine war;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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