Working Paper: CEPR ID: DP18628
Authors: Julian Di Giovanni; Sebnem Kalemlizcan; Alvaro Silva; Muhammed A. Yildrim
Abstract: We employ a multi-country multi-sector New Keynesian model to analyze the factors driving pandemic-era inflation. The model incorporates both sector-specific and aggregate shocks, which propagate through the global trade and production network andgenerate demand and supply imbalances, leading to inflation and spillovers. The baseline quantitative exercise matches changes in aggregate and sectoral prices and wages for a sample of countries including the United States, Euro Area, China, and Russia. Our findings indicate that supply-chain bottlenecks ignited inflation in 2020, followed by a surge in prices driven by aggregate demand shocks from 2021 through 2022, exacerbated by rising energy prices.
Keywords: inflation; global production network
JEL Codes: E2; E3; E6; F1; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Negative supply shocks to production factors (E23) | Inflation (E31) |
| Global supply chains and production complementarities (F12) | Inflation (E31) |
| Positive aggregate demand shocks (E00) | Inflation (E31) |
| Stimulatory fiscal policies (E62) | Positive aggregate demand shocks (E00) |
| Relative sector-level demand shock (R22) | Transmission of imbalances through global trade network (F65) |
| Global energy shocks (Q43) | Inflation (E31) |
| Complementarities between energy and other production inputs (Q43) | Quantitative effects of Global energy shocks on Inflation (Q43) |