Drivers and spillover effects of inflation: The United States, the euro area, and the United Kingdom☆

Stephen Hall, George Tavlas and Yongli Wang

Journal of International Money and Finance, 2023, vol. 131, issue C

Abstract: We investigate the drivers of the recent inflation in three currency areas: the United States, the euro area, and the United Kingdom. To do so, we use a VAR set-up to examine the nature of the shocks that underpinned the recent inflation. We apply-two methods to calculate shocks – the standard Cholesky decomposition and a new method that captures more realistic shocks by solving the VAR backwards. We also use spatial modelling to investigate cross-country inflation spillovers. We find the inflationary shocks in the United States are transmitted to the euro area and the United Kingdom in a powerful and consistent way. The euro area transmits inflation to the other regions but to a lesser extent, while the inflation in the United Kingdom has little effect on the other two regions.

Keywords: Inflation; VAR analysis; Impulse responses; Spatial spillovers (search for similar items in EconPapers)
JEL-codes: C52 C53 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:131:y:2023:i:c:s0261560622001796

DOI: 10.1016/j.jimonfin.2022.102776

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