Dynamics and Determinants of Inflation During the COVID-19 Pandemic Period in European Countries: A Spatial Panel Data Analysis

Abstract

Aim: The recent macroeconomic problems in the global economy are highly related to the coronavirus disease 2019 (COVID-19) pandemic. Since the highest spread of the disease is observed in the European countries, it is worthwhile to investigate the macroeconomic indicators in the European Union (EU) member and the candidate countries. Inflation is one of the most important indicators to examine since it may directly affect many macroeconomic variables. In this study, the determinants of inflation in the 28 EU members and candidate states are investigated. Material and Methods: In this study, the determinants of inflation in the 28 EU members and candidate states are investigated for January 2020-July 2020 using spatial panel data analysis. Results: The empirical results indicated that the exchange rate and money supply ratios were reasons of the increase in inflation. There is also increasing pressure on the inflation rates due to the domestic money supply and exchange rate variables as well as the neighborhood relations between countries (positive spatial effects). Conclusion: It is an important finding that macroeconomic problems in each sample country are also affected by developments in neighboring countries as well as internal dynamics. Continuous development of economic, social, and political cooperation between neighboring countries at the regional level is essential. It is reasonable for every country to develop selfsufficient strategies in the fields of agriculture, food, technology, and pharmaceutical industries in case of global disasters. Regional cooperation should not be limited to the development of sectors that stand out during the pandemic period.

The Global Economic Hibernation: Macroeconomic Indicators and Health Management Policies

“…The authors also pointed the spread of macroeconomic problems such as inflation to neighboring countries. In his study, Cavallo (15) confirms Erdoğan et al (30)'s findings. The author indicated that the COVID-19 inflation rate was higher than the official CPI in the US and there were similar findings for 10 out of 16 sample countries.…”

“…However, quantitative easing was introduced during the pandemic to alleviate the recession which may result in long-term inflation (29). While there have been low rates of inflation in most of the developed economies, Erdoğan et al (30) indicated that there is increasing pressure on the inflation rates due to increasing domestic money supply and exchange rate variables in developing economies over the pandemic period. The authors also pointed the spread of macroeconomic problems such as inflation to neighboring countries.…”

China economic performance and natural resources commodity prices volatility: Evidence from China in COVID-19

“…The examined results unveil that the influence of oil prices is positive and statistically significant on economic growth, inflation, and exports of the country. On the other hand, Erdoğan et al, (2020) illustrates that money supply and exchange rates are the primary factors of increased inflation in the European Union member economies during the Covid-19 pandemic.…”

Pandemi Döneminde Milletlerin Zenginliği: Aşı Eşitliği

“…Providing sufficient healthcare services, economic support, and supplying enough vaccine are mostly related to the macroeconomic stability of local economies. Unfortunately, the pandemic hit the developing countries more than the developed ones not only through lack of the healthcare services but also vulnerable macroeconomic conditions (4,5).…”