Department of Economics

Scandinavian Economic History Review p. 19-19 Doi: https://doi.org/10.1080/03585522.2025.2545894

Handelshøyskolen BI

This paper studies the consequences of using a deterministic steady state in Vector Autoregressive (VAR) models, when the data may display structural breaks, transitional dynamics or low-frequency fluctuations. We document substantial upward biases in the estimated coefficients, with distortions further amplified by the identification scheme. Allowing the steady state to be stochastic, however, reduces these distortions. To address this issue, we propose a spike-and-slab prior to differentiate between two alternative long-run specifications. Finally, we apply our empirical framework to revisit two well-known debates in macro: (i) the dynamics of hours in response to technology shocks; (ii) the habit formation hypothesis and the humpshaped response of consumption to business cycle shocks.

Aquaculture 613 p. 743386-743386 Doi: https://doi.org/10.1016/j.aquaculture.2025.743386

European Economic Review 181 p. 105192-105192 Doi: https://doi.org/10.1016/j.euroecorev.2025.105192

After decades of low and stable inflation, advanced economies experienced a sharp and persistent surge in inflation following the COVID-19 pandemic. While many studies have examined the sources of this inflation, less attention has been paid to how domestic inflation expectations amplify global shocks. This paper makes a novel contribution by quantifying that amplification mechanism across six advanced, inflation-targeting economies: the United States, Canada, New Zealand, the Euro Area, the United Kingdom, and Norway. Using a structural Bayesian vector autoregression model, we jointly identify global demand and supply shocks, including various oil market shocks and global supply chain disruptions, as well as domestic shocks to inflation and inflation expectations. We show that these global shocks were key drivers of the post-pandemic inflation surge in all countries studied. Importantly, our counterfactual analysis reveals that inflation expectations have significantly amplified the transmission of global shocks, particularly in Canada, New Zealand, and the US. These findings demonstrate that the interaction between global forces and country-specific expectations is central to understanding inflation dynamics, and underscore the importance of managing inflation expectations as a tool to mitigate persistent inflation.