IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v131y2023ics0261560622001796.html
   My bibliography  Save this article

Drivers and spillover effects of inflation: The United States, the euro area, and the United Kingdom☆

Author

Listed:
  • Hall, Stephen G.
  • Tavlas, George S.
  • Wang, Yongli

Abstract

We investigate the drivers of the recent inflation in three currency areas: the United States, the euro area, and the United Kingdom. To do so, we use a VAR set-up to examine the nature of the shocks that underpinned the recent inflation. We apply-two methods to calculate shocks – the standard Cholesky decomposition and a new method that captures more realistic shocks by solving the VAR backwards. We also use spatial modelling to investigate cross-country inflation spillovers. We find the inflationary shocks in the United States are transmitted to the euro area and the United Kingdom in a powerful and consistent way. The euro area transmits inflation to the other regions but to a lesser extent, while the inflation in the United Kingdom has little effect on the other two regions.

Suggested Citation

  • Hall, Stephen G. & Tavlas, George S. & Wang, Yongli, 2023. "Drivers and spillover effects of inflation: The United States, the euro area, and the United Kingdom☆," Journal of International Money and Finance, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622001796
    DOI: 10.1016/j.jimonfin.2022.102776
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560622001796
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jimonfin.2022.102776?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Julian di Giovanni & Ṣebnem Kalemli-Özcan & Alvaro Silva & Muhammed A. Yildirim, 2022. "Global Supply Chain Pressures, International Trade, and Inflation," NBER Working Papers 30240, National Bureau of Economic Research, Inc.
    2. Gianluca Benigno & Julian di Giovanni & Jan J. J. Groen & Adam I. Noble, 2022. "Global Supply Chain Pressure Index: May 2022 Update," Liberty Street Economics 20220518, Federal Reserve Bank of New York.
    3. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2022. "Monetary Policy Communications and Their Effects on Household Inflation Expectations," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1537-1584.
    4. Raphael A. Auer & Andrei A. Levchenko & Philip Sauré, 2019. "International Inflation Spillovers through Input Linkages," The Review of Economics and Statistics, MIT Press, vol. 101(3), pages 507-521, July.
    5. Gianluca Benigno & Julian di Giovanni & Jan J. J. Groen & Adam I. Noble, 2022. "The GSCPI: A New Barometer of Global Supply Chain Pressures," Staff Reports 1017, Federal Reserve Bank of New York.
    6. Khandokar Istiak & Aviral Kumar Tiwari & Humaira Husain & Kazi Sohag, 2021. "The Spillover of Inflation among the G7 Countries," JRFM, MDPI, vol. 14(8), pages 1-20, August.
    7. Orkideh Gharehgozli & Sunhyung Lee, 2022. "Money Supply and Inflation after COVID-19," Economies, MDPI, vol. 10(5), pages 1-14, April.
    8. Primiceri, Giorgio & Lenza, Michele, 2020. "How to Estimate a VAR after March 2020," CEPR Discussion Papers 15245, C.E.P.R. Discussion Papers.
    9. Boz, Emine & Casas, Camila & Georgiadis, Georgios & Gopinath, Gita & Le Mezo, Helena & Mehl, Arnaud & Nguyen, Tra, 2020. "Patterns in invoicing currency in global trade," Working Paper Series 2456, European Central Bank.
    10. Gianluca Benigno & Julian di Giovanni & Jan J. J. Groen & Adam I. Noble, 2022. "Global Supply Chain Pressure Index: March 2022 Update," Liberty Street Economics 20220303, Federal Reserve Bank of New York.
    11. Gita Gopinath, 2015. "The International Price System," NBER Working Papers 21646, National Bureau of Economic Research, Inc.
    12. Jesse LaBelle & Ana Maria Santacreu, 2022. "Global Supply Chain Disruptions and Inflation During the COVID-19 Pandemic," Review, Federal Reserve Bank of St. Louis, vol. 104(2), pages 78-91.
    13. Gregor Bäurle & Matthias Gubler & Diego R. Känzig, 2021. "International Inflation Spillovers: The Role of Different Shocks," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 191-230, March.
    14. Gianluca Benigno & Julian di Giovanni & Jan J. J. Groen & Adam I. Noble, 2022. "A New Barometer of Global Supply Chain Pressures," Liberty Street Economics 20220104, Federal Reserve Bank of New York.
    15. Adam Hale Shapiro, 2022. "How Much Do Supply and Demand Drive Inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(15), pages 1-06, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Helge Berger & Sune Karlsson & Pär Österholm, 2023. "A note of caution on the relation between money growth and inflation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 479-496, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Corsello & Marco Flaccadoro & Stefania Villa, 2023. "Quantity versus price dynamics: the role of energy and bottlenecks in the Italian industrial sector," Questioni di Economia e Finanza (Occasional Papers) 781, Bank of Italy, Economic Research and International Relations Area.
    2. Aharon, David Y. & Qadan, Mahmoud, 2022. "Infection, invasion, and inflation: Recent lessons," Finance Research Letters, Elsevier, vol. 50(C).
    3. Viral V. Acharya & Matteo Crosignani & Tim Eisert & Christian Eufinger, 2023. "How Do Supply Shocks to Inflation Generalize? Evidence from the Pandemic Era in Europe," NBER Working Papers 31790, National Bureau of Economic Research, Inc.
    4. Francois de Soyres & Ana Maria Santacreu & Henry L. Young, 2023. "Demand-Supply Imbalance during the COVID-19 Pandemic: The Role of Fiscal Policy," Review, Federal Reserve Bank of St. Louis, vol. 105(1), pages 21-50, January.
    5. Serdar Kabaca & Kerem Tuzcuoglu, 2023. "Supply Drivers of US Inflation Since the COVID-19 Pandemic," Staff Working Papers 23-19, Bank of Canada.
    6. Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li & Francesco Zanetti, 2024. "The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory," Economics Series Working Papers 1033, University of Oxford, Department of Economics.
    7. Gregor Bäurle & Matthias Gubler & Diego R. Känzig, 2021. "International Inflation Spillovers: The Role of Different Shocks," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 191-230, March.
    8. Jordà, Òscar & Nechio, Fernanda, 2023. "Inflation and wage growth since the pandemic," European Economic Review, Elsevier, vol. 156(C).
    9. Sai Ma & Tim Schmidt-Eisenlohr & Shaojun Zhang, 2020. "The Effect of the Dollar on Trade Prices," CESifo Working Paper Series 8727, CESifo.
    10. Christina Anderl & Guglielmo Maria Caporale, 2023. "Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation," CESifo Working Paper Series 10798, CESifo.
    11. Ha, Jongrim & Kose, M. Ayhan & Ohnsorge, Franziska, 2023. "One-stop source: A global database of inflation," Journal of International Money and Finance, Elsevier, vol. 137(C).
    12. Edoardo Beretta & Doris Neuberger, 2023. "Monetary aggregates in the US since 2020 and post-COVID-19 inflation: evidence from the equation of exchange," Economics and Business Letters, Oviedo University Press, vol. 12(4), pages 321-330.
    13. Huang, Wenli & Li, Shi & Qi, Zhen & Zhang, Qi, 2022. "Macro disagreement and international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    14. Ha, Jongrim & Kose, M. Ayhan & Ohnsorge, Franziska & Yilmazkuday, Hakan, 2023. "Understanding the global drivers of inflation: How important are oil prices?11We would like to thank Xuguang Simon Sheng, Guest Editor, and two anonymous reviewers for their detailed feedback. We also," Energy Economics, Elsevier, vol. 127(PA).
    15. Frohm, Erik, 2023. "Dominant currencies and the export supply channel," International Economics, Elsevier, vol. 173(C), pages 1-18.
    16. Paolo Pasimeni, 2022. "Supply or Demand, that is the Question: Decomposing Euro Area Inflation," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(6), pages 384-393, November.
    17. Yusuf Emre Akgündüz & Salih Fendoğlu, 2022. "Export Prices, Imported Inputs, and Domestic Supply Networks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 383-419, September.
    18. Montfaucon, Angella Faith, 2022. "Invoicing Currency and Symmetric Pass-Through of Exchange Rates and Tariffs: Evidence from Malawian Imports from the EU," International Economics, Elsevier, vol. 169(C), pages 191-207.
    19. Almut Balleer & Marvin Noeller, 2023. "Monetary Policy in the Presence of Supply Constraints: Evidence from German Firm-Level Data," CESifo Working Paper Series 10261, CESifo.
    20. Dudda, Tom L. & Klein, Tony & Nguyen, Duc Khuong & Walther, Thomas, 2022. "Common Drivers of Commodity Futures?," QBS Working Paper Series 2022/05, Queen's University Belfast, Queen's Business School.

    More about this item

    Keywords

    Inflation; VAR analysis; Impulse responses; Spatial spillovers;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622001796. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.