[PDF] The 2020 2022 Inflation Surge Across Europe A Phillips Curve Based Dissection eBook

Author : Chikako Baba
Publisher : International Monetary Fund
Page : 25 pages
File Size : 47,39 MB
Release : 2023-02-10
Category : Business & Economics
ISBN :

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In 2021-22, inflation in Europe soared to multidecade highs, consistently exceeding policymakers’ forecasts and surprising with its wide cross-country dispersion. This paper analyzes the key drivers of the inflation surge in Europe and its variation across countries. The analysis highlights significant differences in Phillips curve parameters across Europe’s economies. Inflation is more sensitive to domestic slack and external price pressures in emerging European economies compared to their advanced counterparts, which contributed to a greater passthrough of global commodity price shocks into domestic prices, and, consequently, to larger increases in inflation rates. Across Europe, inflation also appears to have become increasingly backward looking and more sensitive to commodity price shocks since the onset of the COVID-19 pandemic. This finding helps explain why conventional (Phillips curve) inflation models consistently underpredicted the 2021-2022 inflation surge, although it remains too early to conclude there has been a structural break in the inflation process.

Author : Mr. Christoffer Koch
Publisher : International Monetary Fund
Page : 38 pages
File Size : 16,93 MB
Release : 2023-05-12
Category : Business & Economics
ISBN :

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This paper analyzes the inflation forecast errors over the period 2021Q1-2022Q3 using forecasts of core and headline inflation from the International Monetary Fund World Economic Outlook for a large group of advanced and emerging market economies. The findings reveal evidence of forecast bias that worsened initially then subsided towards the end of the sample. There is also evidence of forecast oversmoothing indicating rigidity in forecast revision in the face of incoming information. Focusing on core inflation forecast errors in 2021, four factors provide a potential ex post explanation: a stronger-than-anticipated demand recovery; demand-induced pressures on supply chains; the demand shift from services to goods at the onset of the pandemic; and labor market tightness. Ex ante, we find that the size of the COVID-19 fiscal stimulus packages announced by different governments in 2020 correlates positively with core inflation forecast errors in advanced economies. This result hints at potential forecast inefficiency, but we caution that it hinges on the outcomes of a few, albeit large, economies.

Author : Jordi Galí
Publisher :
Page : 54 pages
File Size : 33,67 MB
Release : 2001
Category : Economics
ISBN :

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We provide evidence on the fit of the New Phillips Curve (NPQ for the Euro area over the period 1970-1998, and use it as a tool to compare the characteristics of European inflation dynamics with those observed in the U.S. We also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs, as well as that of its two main components, namely, labor productivity and real wages. Some of the findings can be summarized as follows: (a) the NPC fits Euro area data very well, possibly better than U.S. data, (b) the degree of price stickiness implied by the estimates is substantial, but in line with survey evidence and U.S. estimates, (c) inflation dynamics in the Euro area appear to have a stronger forward- looking component (i.e., less inertia) than in the U.S., (d) labor market frictions, as manifested in the behavior of the wage markup, appear to have played a key role in shaping the behavior of marginal costs and, consequently, inflation in Europe.

Author : Tryggvi Gudmundsson
Publisher : International Monetary Fund
Page : 50 pages
File Size : 13,96 MB
Release : 2024-01-12
Category : Business & Economics
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We study the global inflation surge during the pandemic recovery and the implications for aggregate and sectoral Phillips curves. We provide evidence that Phillips curves shifted up and steepened across advanced economies, and that differences in the inflation response across sectors imply the relative price of goods has been pro-cyclical this time around rather than a-cyclical as during previous cycles. We show analytically that these three features emerge endogenously in a two-sector new-Keynesian model when we introduce unbalanced recoveries that run against a supply constraint in the goods sector. A calibrated exercise shows that the resulting changes to the output-inflation relation are quantitatively important and improve the model's ability to replicate the inflation surge during this period.

Author : Mr. Anil Ari
Publisher : International Monetary Fund
Page : 23 pages
File Size : 16,60 MB
Release : 2023-05-12
Category : Business & Economics
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This paper analyzes whether structural changes in the aftermath of the pandemic have steepened the Phillips curves in advanced economies, reversing the flattening observed in recent decades and reducing the sacrifice ratio associated with disinflation. Particularly, analysis of granular price quote data from the UK indicates that increased digitalization may have raised price flexibility, while de-globalization may have made inflation more responsive to domestic economic conditions again. Using sectoral data from 24 advanced economies in Europe, higher digitalization and lower trade intensity are shown to be associated with steeper Phillips curves. Post-pandemic Phillips curve estimates indicate some steepening in the UK, Spain, Italy and the euro area as a whole, but at magnitudes that are too small to explain the entire surge in inflation in 2021–22, suggesting an important role for outward shifts in the Phillips curve.

Author : Robert C. M. Beyer
Publisher : International Monetary Fund
Page : 14 pages
File Size : 44,87 MB
Release : 2023-07-07
Category : Business & Economics
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Inflation has risen sharply in Cyprus, initially driven by imported prices, but increasingly broadening to domestic prices. A Phillips Curve estimate attributes the high inflation largely to energy prices, external price pressures, and inflation expectations at the end of 2022. Historically high pass-through of inflation shocks to wages—amplified by a tight labor market—may make inflation persistent. This calls for policies to stem inflationary pressures while protecting vulnerable households.

Author : International Monetary Fund. Middle East and Central Asia Dept.
Publisher : International Monetary Fund
Page : 27 pages
File Size : 20,99 MB
Release : 2024-02-07
Category : Business & Economics
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Selected Issues

Author : Mr. Kamil Dybczak
Publisher : International Monetary Fund
Page : 20 pages
File Size : 17,59 MB
Release : 2023-07-10
Category : Business & Economics
ISBN :

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This paper examines recent trends, main drivers, and risks to near-term inflation in Portugal. Before the energy crisis, inflation in Portugal was low, often below the Euro Area average, but it accelerated quickly in the second half of 2022. Our estimated Phillips curve regression suggests that, similarly to other Euro Area countries, inflation in Portugal has been largely driven by food and external prices pressures. Inflation is projected to gradually decrease, reflecting receding energy prices and anchored inflation expectations. However, uncertainty remains high and inflation could remain elevated, especially if the inflationary process became backward looking or wage-inflation spirals are induced by pressures from energy prices.

Author : International Monetary Fund. European Dept.
Publisher : International Monetary Fund
Page : 51 pages
File Size : 14,61 MB
Release : 2023-06-22
Category : Business & Economics
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Portugal: Selected Issues

Author : International Monetary Fund. European Dept.
Publisher : International Monetary Fund
Page : 22 pages
File Size : 32,93 MB
Release : 2023-06-05
Category : Business & Economics
ISBN :

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Cyprus: Selected Issues