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

Author

Listed:
  • Stephen G. Hall

    (Leicester University, Bank of Greece, and Pretoria University)

  • George S. Tavlas

    (Bank of Greece and the Hoover Institution, Stanford University)

  • Yongli Wang

    (Birmingham University)

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

Suggested Citation

  • Stephen G. Hall & George S. Tavlas & Yongli Wang, 2022. "Drivers and spillover effects of inflation: the United States, the euro area, and the United Kingdom," Working Papers 309, Bank of Greece.
    • Handle: RePEc:bog:wpaper:309
    DOI: 10.52903/wp2022309
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    Keywords

    Inflation; VAR analysis; impulse responses; spatial spillovers;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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