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.
Original language | English |
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Article number | 102776 |
Number of pages | 31 |
Journal | Journal of International Money and Finance |
Volume | 131 |
Early online date | 22 Nov 2022 |
DOIs | |
Publication status | Published - 1 Mar 2023 |
Keywords
- Inflation
- VAR analysis
- Impulse responses
- Spatial spillovers