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A forecast error decomposition of inflation in the Euro Area
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This paper analyses the recent trends in the inflationary shock hitting the Euro Area since the
onset of the Covid-19 pandemic up to nowadays. The aim is to understand its causes and
identify its main drivers, its possible long-term impact on the Euro Area economy and best
policy responses. This will be done by employing a New Keynesian 3-equation model as well
as a Bayesian VAR model. It results that demand factors are increasingly driving inflation
dynamics alongside historical supply-side factors, and that a stronger coordination between
monetary and fiscal policies is needed in order to make ends meet.
Descrição
Palavras-chave
Inflation Supply shock Demand shock New keynesian 3-equations model Structural var Monetary policy