Inflation Spillovers and Geopolitical Risks: Evidence from Euro Area Countries Using TVP-VAR and Quantile Models

Year 2025, , 140 - 159, 28.03.2025

Cumali Marangoz

https://doi.org/10.30784/epfad.1599945

Abstract

This study examines the inflation transmission mechanism across 14 European Union countries, from May 1963 to November 2023. Contrary to the existing literature, this study employs a two-stage approach to examine the spillover effect of inflation in the European Region. The study identifies the inflation spillover effects by applying a time-varying parameter vector autoregressive (TVP-VAR) model with the joint connectedness framework. Moreover, we analyze the relationship between the Total Connectedness Index (TCI) and geopolitical risks (GPR) using the Quantile-on-Quantile (QoQ) model and explore how geopolitical uncertainties influence inflation transmission dynamics. The analysis provides significant contributions to the literature in terms of both methodology and scope by allowing responses to risk shocks of different magnitudes to be measured at quantile levels. The findings show that as Denmark, Germany, and France are highly interconnected with other countries in the region, they have an essential of spreading inflation. Unlike, the global and the US’s risk indices, Russia’s and Europe’s GPR have a more significant impact on inflation. Finally, the interaction between TCI and GPR differ across quantiles, implying the existence of non-linear and asymmetric impacts of geopolitical events on inflation interconnectedness.

Keywords

Inflation Transmission, European Union, Geopolitical Risks

Enflasyon Yayılma Etkileri ve Jeopolitik Riskler: TVP-VAR ve Kantil Modelleri Kullanılarak Euro Bölgesi Ülkelerinden Kanıtlar

Abstract

Bu çalışma, Mayıs 1963 ile Kasım 2023 arasındaki dönemde 14 Avrupa Birliği ülkesinde enflasyon yayılma mekanizmasını incelemektedir. Literatürün aksine, bu çalışmada Avrupa Bölgesi'nde enflasyonun yayılma etkisini incelemek için iki aşamalı bir yaklaşım kullanılmaktadır. Çalışmada, zamanla değişen parametreli vektör otoregresif (TVP-VAR) modeli ve ortak bağlantılılık çerçevesi kullanılarak enflasyonun yayılma etkileri belirlenmiştir. Ayrıca, Toplam Bağlantılılık Endeksi (TCI) ile jeopolitik riskler (GPR) arasındaki ilişki, Kantil-üzerinde-Kantil (QoQ) modeli ile analiz edilmiş ve jeopolitik belirsizliklerin enflasyon yayılma dinamiklerini nasıl etkilediği incelenmiştir. Analiz, farklı büyüklükteki risk şoklarına verilen tepkilerin kantil seviyelerinde ölçülmesine olanak tanıyarak hem metodoloji hem de kapsam açısından literatüre önemli katkılar sağlamaktadır. Bulgular, Danimarka, Almanya ve Fransa’nın bölgedeki diğer ülkelerle yüksek derecede bağlantılı olduğunu ve bu ülkelerin enflasyonun yayılmasında önemli bir role sahip olduğunu göstermektedir. Global ve ABD risk endekslerinin aksine, Rusya ve Avrupa’nın GPR’si enflasyon üzerinde daha önemli bir etkiye sahiptir. Son olarak, TCI ile GPR arasındaki etkileşimlerin farklı kantillerde değişiklik gösterdiği ve jeopolitik olayların enflasyon bağlantılılığı üzerinde doğrusal olmayan ve asimetrik etkiler yarattığı tespit edilmiştir.

Keywords

Enflasyon Yayılımı, Avrupa Birliği, Jeopolitik Riskler

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