Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Untangling Inflation: How does monetary policy effect demand- and supply-driven inflation

Hamrén Berg, Anton LU (2025) NEKN01 20251
Department of Economics
Abstract (Swedish)
This thesis examines the impact of monetary policy on demand- and supply-driven inflation in Sweden between 2000 and 2024. The study extends Shapiro’s (2024) decomposition framework using a Bayesian Vector Autoregression with Time-Varying Parameters (BVAR-TVP) to decompose Swedish inflation into demand- and supply-side components. A subsequent regression analysis evaluates the effects of the Riksbank’s key monetary policy instruments, policy rate and quantitative easing (QE) on each inflation component. The results indicate that demand-driven inflation was the dominant contributor during the sample period. The regression results suggest that the policy rate effectively damps demand-side pressures. QE increased demand-driven inflation and,... (More)
This thesis examines the impact of monetary policy on demand- and supply-driven inflation in Sweden between 2000 and 2024. The study extends Shapiro’s (2024) decomposition framework using a Bayesian Vector Autoregression with Time-Varying Parameters (BVAR-TVP) to decompose Swedish inflation into demand- and supply-side components. A subsequent regression analysis evaluates the effects of the Riksbank’s key monetary policy instruments, policy rate and quantitative easing (QE) on each inflation component. The results indicate that demand-driven inflation was the dominant contributor during the sample period. The regression results suggest that the policy rate effectively damps demand-side pressures. QE increased demand-driven inflation and, contrary to expectations, had a statistically significant impact on supply-driven inflation in some model specifications. These findings challenge the traditional view that monetary policy is ineffective against supply-side inflation, suggesting broader transmission channels, particularly for QE. The study emphasises the importance of distinguishing between inflation sources to implement timely and effective policy responses. (Less)
Please use this url to cite or link to this publication:
author
Hamrén Berg, Anton LU
supervisor
organization
course
NEKN01 20251
year
type
H1 - Master's Degree (One Year)
subject
keywords
Decomposition, Inflation, Demand, Supply
language
English
id
9194696
date added to LUP
2025-09-12 09:59:06
date last changed
2025-09-12 09:59:06
@misc{9194696,
  abstract     = {{This thesis examines the impact of monetary policy on demand- and supply-driven inflation in Sweden between 2000 and 2024. The study extends Shapiro’s (2024) decomposition framework using a Bayesian Vector Autoregression with Time-Varying Parameters (BVAR-TVP) to decompose Swedish inflation into demand- and supply-side components. A subsequent regression analysis evaluates the effects of the Riksbank’s key monetary policy instruments, policy rate and quantitative easing (QE) on each inflation component. The results indicate that demand-driven inflation was the dominant contributor during the sample period. The regression results suggest that the policy rate effectively damps demand-side pressures. QE increased demand-driven inflation and, contrary to expectations, had a statistically significant impact on supply-driven inflation in some model specifications. These findings challenge the traditional view that monetary policy is ineffective against supply-side inflation, suggesting broader transmission channels, particularly for QE. The study emphasises the importance of distinguishing between inflation sources to implement timely and effective policy responses.}},
  author       = {{Hamrén Berg, Anton}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Untangling Inflation: How does monetary policy effect demand- and supply-driven inflation}},
  year         = {{2025}},
}