Shockflation in the EU: sectoral shocks, cost-push inflation and structural asymmetries in core and periphery countries

Vicente Ferreira, João Pedro Ferreira, Dario Guarascio and Francesco Zezza

No 179, CIMEO Working Paper Series from Centre for Investigation and Modelling of Experimental Observations (CIMEO)

Abstract: The return of inflation in Western economies has fueled the debate on its main drivers, bringing sector-specific shocks and supply chain bottlenecks to the forefront. Building on the seminal approach of Weber et al. (2024), this paper develops a method to assess the degree of exposure to these shocks in EU countries. Using inter-country input-output data stemming from the FIGARO database, we identify systemically significant sectors in four regions within the EU: Core, Southern Periphery, Eastern Periphery, and financial hubs. We also analyze exposure to foreign shocks. Two main conclusions can be drawn: on the one hand, periphery countries are more exposed to shocks originating in the EU core than the other way around; on the other hand, all EU regions are considerably exposed to price shocks originating from non-EU countries, namely Russia and China. The strategic dependencies of the block pose challenges for price stability and require targeted policies.

Keywords: Inflation; Supply chain shocks; Input-Output; Core-periphery (search for similar items in EconPapers)
JEL-codes: C67 E31 E61 (search for similar items in EconPapers)
Date: 2024-11
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Persistent link: https://EconPapers.repec.org/RePEc:ter:wpaper:00179

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