Here Comes the Change: The Role of Global and Domestic Factors in Post-Pandemic Inflation in Europe

Mahir Binici, Samuele Centorrino, Serhan Cevik and Gyowon Gwon

No 2022/241, IMF Working Papers from International Monetary Fund

Abstract: Global inflation has surged to 7.5 percent in August 2022, from an average of 2.1 percent in the decade preceding the COVID-19 pandemic, threatening to become an entrenched phenomenon. This paper disentangles the confluence of contributing factors to the post-pandemic rise in consumer price inflation, using monthly data and a battery of econometric methodologies covering a panel of 30 European countries over the period 2002-2022. We find that while global factors continue to shape inflation dynamics throughout Europe, country-specific factors, including monetary and fiscal policy responses to the crisis, have also gained greater prominence in determining consumer price inflation during the pandemic period. Coupled with increasing persistence in inflation, these structural shifts call for significant and an extended period of monetary tightening and fiscal realignment.

Keywords: Inflation; output gap; globalization; Phillips curve; dynamic factor model; fixed effect estimator; local projection method; inflation dynamics; consumer price inflation; fiscal policy response; inflation expectation; inflation process; commodity price; core CPI; Commodity prices; COVID-19; Energy prices; Global; Europe (search for similar items in EconPapers)
Pages: 42
Date: 2022-12-09
New Economics Papers: this item is included in nep-eec and nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Here Comes the Change: The Role of Global and Domestic Factors in Post-Pandemic Inflation in Europe (2024)
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