What caused the post-pandemic inflation? Replicating Bernanke and Blanchard (2023) on French data

Pierre Aldama, Hervé Le Bihan and Claire Le Gall

Working papers from Banque de France

Abstract: We analyse post-pandemic inflation in France using the Bernanke and Blanchard (2023) semi-structural model of wage and price inflation. This model builds on a wage Phillips curve, a mark-up price-setting equation and adaptive equations for short- and long-run inflation expectations. Wage and price inflation as well as inflation expectations are modelled as functions of a labour market slack indicator (the vacancies-to-unemployed ratio), energy and food price shocks, a measure of supply-chain disruptions ( shortages ) and other exogenous factors (trend productivity, Covid lockdowns/re-openings). We estimate the model from the 1990s to 2023Q2 and derive impulse response functions and historical decomposition of endogenous variables during the pandemic-era. As Bernanke and Blanchard (2023) for the US, we find that the main driver of the post-pandemic inflation was the energy price shocks at first, followed by the food price shocks. Labour market conditions initially played a minor role in inflation, although the substantial increase in wage inflation observed between 2021Q4 and 2023Q2 can be attributed predominantly to the tightening of the labour market. Finally, we perform conditional simulations of wage and price inflation based on alternative scenarios for labour market tightness.

Keywords: Prices; Inflation; Wages; Inflation Expectations; Phillips Curve (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2024
New Economics Papers: this item is included in nep-his and nep-mon
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