Abstract

The paper investigates the international dimension of the recent inflation
surge by disentangling domestic and foreign factors through an extended structural
vector autoregressive (SVAR) model applied to Norway, Sweden, the United
Kingdom, and the United States. International factors, including foreign supply and
demand shocks, are identified and quantified by imposing novel restrictions on variables like import prices and trading partner output. Results indicate that the role of
international demand shocks varies across countries, with a significant impact observed in European nations such as Norway and Sweden, while domestic demand
dominates in the U.S. Importantly, foreign supply shocks are found to absorb some
explanatory power from domestic supply shocks but do not undermine the predominance of demand factors overall. Monetary policy shocks have contributed significantly to keep interest rates lower than the value prescribed by the implicit historical monetary policy rule in all the four economies that we consider, thus highlighting that part of the synchronization in the recent interest rate cycle is due to the unsystematic component of monetary policy, and not only to the presence of global shocks.