Pandemic-Era Inflation Drivers and Global Spillovers

Julian di Giovanni, Şebnem Kalemli-Özcan, Álvaro Silva, Muhammed A. Yildirim and Muhammed Ali Yildirim

No 10789, CESifo Working Paper Series from CESifo

Abstract: We estimate a multi-country multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–2023 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/Euro exchange rate. The quantification exercise yields four key findings. First, negative supply shocks to factors of production, labor and intermediate inputs, initially sparked inflation in 2020–2021. Global supply chains and complementarities in production played an amplification role in this initial phase. Second, positive aggregate demand shocks, due to stimulative policies, widened demand-supply imbalances, amplifying inflation further during 2021–2022. Third, the reallocation of consumption between goods and service sectors, a relative sector-level demand shock, played a role in transmitting these imbalances across countries through the global trade and production network. Fourth, global energy shocks have differential impacts on the US relative to other countries’ inflation rates. Further, complementarities between energy and other inputs to production play a particularly important role in the quantitative impact of these shocks on inflation.

Keywords: inflation; international spillovers; global production network (search for similar items in EconPapers)
JEL-codes: E20 E30 E60 F10 F40 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-eec, nep-int, nep-inv, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Pandemic-era Inflation Drivers and Global Spillovers (2023)
Working Paper: Pandemic-Era Inflation Drivers and Global Spillovers (2023)
Working Paper: Pandemic-Era Inflation Drivers and Global Spillovers (2023)
Working Paper: Pandemic-era Inflation Drivers and Global Spillovers (2023)
Working Paper: Pandemic-Era Inflation Drivers and Global Spillovers (2023)
Working Paper: Pandemic-era Inflation Drivers and Global Spillovers (2023)
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