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Drivers of inflationary shocks and spillovers between Europe and the United States

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  • Sánchez García, Javier
  • Galdeano Gómez, Emilio
  • Cruz Rambaud, Salvador

Abstract

This paper builds a structural econometric model to measure the impact on inflation of three shocks: a shock of disequilibrium in the energy markets, a money growth shock, and a global stochastic shock, which covers factors such as inflationary expectations and uncertainty. It is found that for the economies of Europe and the United States, the current inflationary period is dominated by the global component closely followed by energy markets in the short term and by monetary growth in the medium term. The dynamics of the model further show that the recent exponential inflationary surge of 2021 onward is mainly headed by other factors rather than energy markets or money growth, such as expectations or uncertainty. Further analysis of the spillover effects between the inflation of Europe and the United States based on endogeneity-robust econometric estimations shows that this relationship is unidirectional from the USA to Europe. In essence, this work shows that a coordinated strategy between fiscal and monetary policies is the best response to recent inflationary shocks.

Suggested Citation

  • Sánchez García, Javier & Galdeano Gómez, Emilio & Cruz Rambaud, Salvador, 2024. "Drivers of inflationary shocks and spillovers between Europe and the United States," Socio-Economic Planning Sciences, Elsevier, vol. 95(C).
  • Handle: RePEc:eee:soceps:v:95:y:2024:i:c:s0038012124001769
    DOI: 10.1016/j.seps.2024.101977
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    More about this item

    Keywords

    Inflation; Money growth; Energy markets; Structural Vector Autoregression (VAR); Supply chains; Macro-financial dynamics;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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