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

Stephen Hall, George Tavlas and Yongli Wang
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Yongli Wang: Birmingham University

No 309, Working Papers from Bank of Greece

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

Keywords: Inflation; VAR analysis; impulse responses; spatial spillovers (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
Pages: 44
Date: 2022-12
New Economics Papers: this item is included in nep-eec, nep-mon and nep-opm
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Working Paper: Drivers and Spillover Effects of Inflation: the United States, the Euro Area, and the United Kingdom (2022)
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