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What caused the post-pandemic inflation? Replicating Bernanke and Blanchard (2023) on French data

Author

Listed:
  • Pierre Aldama
  • Hervé Le Bihan
  • Claire Le Gall

Abstract

We analyse post-pandemic inflation in France using the Bernanke and Blanchard (2023) semi-structural model of wage and price inflation. This model builds on a wage Phillips curve, a mark-up price-setting equation and adaptive equations for short- and long-run inflation expectations. Wage and price inflation as well as inflation expectations are modelled as functions of a labour market slack indicator (the vacancies-to-unemployed ratio), energy and food price shocks, a measure of supply-chain disruptions (“shortages”) and other exogenous factors (trend productivity, Covid lockdowns/re-openings). We estimate the model from the 1990s to 2023Q2 and derive impulse response functions and historical decomposition of endogenous variables during the pandemic-era. As Bernanke and Blanchard (2023) for the US, we find that the main driver of the post-pandemic inflation was the energy price shocks at first, followed by the food price shocks. Labour market conditions initially played a minor role in inflation, although the substantial increase in wage inflation observed between 2021Q4 and 2023Q2 can be attributed predominantly to the tightening of the labour market. Finally, we perform conditional simulations of wage and price inflation based on alternative scenarios for labour market tightness.

Suggested Citation

  • Pierre Aldama & Hervé Le Bihan & Claire Le Gall, 2024. "What caused the post-pandemic inflation? Replicating Bernanke and Blanchard (2023) on French data," Working papers 967, Banque de France.
    • Handle: RePEc:bfr:banfra:967
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    File URL: https://www.banque-france.fr/system/files/2024-10/WP967.pdf
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    References listed on IDEAS

    as
    1. Olivier J. Blanchard & Ben S. Bernanke, 2023. "What Caused the US Pandemic-Era Inflation?," NBER Working Papers 31417, National Bureau of Economic Research, Inc.
    2. Stefano Neri & Fabio Busetti & Cristina Conflitti & Francesco Corsello & Davide Delle Monache & Alex Tagliabracci, 2023. "Energy price shocks and inflation in the euro area," Questioni di Economia e Finanza (Occasional Papers) 792, Bank of Italy, Economic Research and International Relations Area.
    3. Francesco Corsello & Alex Tagliabracci, 2023. "Assessing the pass-through of energy prices to inflation in the euro area," Questioni di Economia e Finanza (Occasional Papers) 745, Bank of Italy, Economic Research and International Relations Area.
    4. Arce, Óscar & Ciccarelli, Matteo & Montes-Galdón, Carlos & Kornprobst, Antoine, 2024. "What caused the euro area post-pandemic inflation?," Occasional Paper Series 343, European Central Bank.
    5. Francesco Corsello & Matteo Gomellini & Dario Pellegrino, 2023. "Inflation and energy price shocks: lessons from the 1970s," Questioni di Economia e Finanza (Occasional Papers) 790, Bank of Italy, Economic Research and International Relations Area.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Prices; Inflation; Wages; Inflation Expectations; Phillips Curve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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