Authors: Julian di Giovanni, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yıldırım
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Staff Reports
Pandemic-Era Inflation Drivers and Global Spillovers
Number 1080
November 2023
November 2023
JEL classification: E2, E3, E6, F1, F4
We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. First, negative supply shocks to factors of production, labor and intermediate inputs, initially sparked inflation in 2020-21. Global supply chains and complementarities in production played an amplification role in this initial phase. Second, positive aggregate demand shocks, due to stimulative policies, widened demand-supply imbalances, amplifying inflation further during 2021-22. Third, the reallocation of consumption between goods and service sectors, a relative sector-level demand shock, played a role in transmitting these imbalances across countries through the global trade and production network. Fourth, global energy shocks have differential impacts on the U.S. relative to other countries’ inflation rates. Further, complementarities between energy and other inputs to production play a particularly important role in the quantitative impact of these shocks on inflation.
Author Disclosure Statement(s)
Julian di Giovanni
Julian di Giovanni declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Şebnem Kalemli-Özcan
I have nothing to disclose.
Alvero Silva
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at hpps://www.newyorkfed.org/research/staff_reports/index.html.
Muhammed Yildirim
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Julian di Giovanni declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Şebnem Kalemli-Özcan
I have nothing to disclose.
Alvero Silva
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at hpps://www.newyorkfed.org/research/staff_reports/index.html.
Muhammed Yildirim
The author declares that (s)he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
di Giovanni, Julian, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yıldırım. 2023. “Pandemic-Era Inflation Drivers and Global Spillovers.” Federal Reserve Bank of New York Staff Reports, no. 1080, November. https://doi.org/10.59576/sr.1080
di Giovanni, Julian, Şebnem Kalemli-Özcan, Alvaro Silva, and Muhammed A. Yıldırım. 2023. “Pandemic-Era Inflation Drivers and Global Spillovers.” Federal Reserve Bank of New York Staff Reports, no. 1080, November. https://doi.org/10.59576/sr.1080
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