Stress-testing Inflation Exposure: Systemically significant prices and asymmetric shock propagation in the EU

Leonhard Ipsen, Armin Aminian and Jan Schulz

Structural Change and Economic Dynamics, 2025, vol. 74, issue C, 713-724

Abstract: This paper documents asymmetries in price shock exposure for the EU, EU core and periphery within the global production network. Building on the foundational work of Weber et al. (2024a), we run a cost-push stress-test using data from the World Input Output Database to estimate a region’s exposure to globally originating and propagating price shocks. We confirm the existence of systemically significant sectors which dominate the overall price level. While the final goods price effects of various sectors are significant, about half are the result of higher-order propagation. This indirect effect is even larger for peripheral countries. Tracing disaggregated shock trajectories uncovers that price volatility originating in core and non-EU countries impacts the peripheral countries more than vice versa. Simultaneously, our method of recovering consumption substitution effects shows that substitution is more limited in the European periphery. The stark asymmetries in exposure have profound implications for fiscal and monetary policy.

Keywords: Inflation; Stress-test; Input-output analysis; Europe (search for similar items in EconPapers)
JEL-codes: C15 C67 E31 F15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:74:y:2025:i:c:p:713-724

DOI: 10.1016/j.strueco.2025.05.010

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