Pandemic-era inflation dynamics in the euro area: the role of policy and non-policy demand and energy and non-energy supply factors

Kristina Barauskaitė Griškevičienė, Claus Brand and Anh Dinh Minh Nguyen

No 3201, Working Paper Series from European Central Bank

Abstract: We analyze the sources of the pandemic-era inflation surge in the euro area using a Bayesian vector autoregression (BVAR) model. By applying narrative, sign, zero, and inequality restrictions,this study is the first that jointly analyzes the inflationary effects of energy and non-energy supply and policy and non-policy demand factors, including fiscal policy, conventional and unconventional monetary policy. Factoring in that energy price dynamics also responded to aggregate demand conditions, we find that the pandemic-era inflation surge in the euro area was driven by a combination of supply and demand factors. Energy-related supply side constraints, even if less important than often estimated, were a key factor in the run up of inflation. Fiscal and monetary policies were accommodative but not the dominant drivers. JEL Classification: C11, C32, E31, E52

Keywords: energy supply; fiscal policy; inflation; monetary policy; pandemic (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-eec and nep-mon
Note: 92649
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263201

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