Arbeitspapier
What drives inflation? Disentangling demand and supply factors
We estimate indicators of aggregate demand and supply conditions based on a structural factor model using a large number of inflation and real activity measures for the United States. We identify demand and supply factors by imposing theoretically motivated sign restrictions on factor loadings. The results provide a narrative of the evolution of the stance of demand and supply over the past five decades. The most recent factor estimates indicate that the inflation surge since mid-2021 has been driven by a combination of extraordinarily expansionary demand conditions and tight supply conditions. We obtain similar results for the euro area, but with a somewhat greater role for tight supply consistent with the greater exposure of the euro area to recent adverse global energy price shocks. We further find that tighter monetary policy and financial conditions dampen both demand and supply conditions.
- ISBN
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978-3-95729-925-3
- Language
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Englisch
- Bibliographic citation
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Series: Deutsche Bundesbank Discussion Paper ; No. 46/2022
- Classification
-
Wirtschaft
- Subject
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inflation
aggregate demand and supply
factor model
sign restrictions
monetary policy
- Event
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Geistige Schöpfung
- (who)
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Eickmeier, Sandra
Hofmann, Boris
- Event
-
Veröffentlichung
- (who)
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Deutsche Bundesbank
- (where)
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Frankfurt a. M.
- (when)
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2022
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Eickmeier, Sandra
- Hofmann, Boris
- Deutsche Bundesbank
Time of origin
- 2022
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