The Global Transmission of Inflation Uncertainty

Mary Ellen Carter (), Juan M. Londono and Sai Ma
Additional contact information
Mary Ellen Carter: https://www.bc.edu/bc-web/schools/carroll-school/faculty-research/faculty-directory/mary-ellen-carter.html

No 2025-01-16, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The COVID-19 pandemic brought unprecedented disruptions to global supply chains, labor markets, and economic activity, leading to significant volatility in inflation rates worldwide. Not only the level of inflation but the uncertainty about the future path of inflation increased considerably since the onset of the pandemic and have remained elevated until very recently, posing challenges for policymakers and businesses alike. Figure 1 shows a measure of inflation uncertainty proposed in a recent paper by Londono, Ma and Wilson (2024) (LMW hereafter). The intuition behind this measure is that inflation uncertainty is higher when inflation becomes objectively harder to predict. In the case here, we follow the methodology of LMW and use a range of inflation metrics and a large set of global financial and economic variables as predictors. As can be seen in the figure, inflation uncertainty in the U.S. has remained exceptionally elevated since the onset of the COVID-19 pandemic and reached a record high in March 2023âabout four standard deviations above its historical mean between 1980 and 2023. This surge in uncertainty was widespread, as seen when we average the inflation uncertainty measures for sets of advanced foreign and emerging market economies.2Inflation uncertainty is thus highly correlated across countries, especially since the onset of the COVID-19 pandemic, a result that aligns well with both the global nature of the forces influencing inflation and that substantiates the challenges experienced in predicting inflation since the onset of the pandemic.3In this note, we explore the economic consequences of the global nature of inflation uncertainty by documenting how inflation uncertainty and its economic consequences transmit across countries.

Date: 2025-01-16
New Economics Papers: this item is included in nep-mon
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2025-01-16

DOI: 10.17016/2380-7172.3692

Access Statistics for this paper

More papers in FEDS Notes from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().