Swedish Inflation: Blame It on Biden!

The evidence is overwhelming. As Steven Kopits comments:

Yes, Powell and Yellen [are at fault for causing the inflation and resulting banking crisis]. Nothing new there.

And, yes, the US can export inflation. If a US fiscal impulse goes into a full employment (or upwardly constrained employment) economy, then the difference will show up in imports. We would expect to see a blow-out in the trade deficit and clogging of ports. Which we did. And we would expect that supply chains across the world would be under pressure with price increases across the globe. Which we did. So, yes, best I can tell, the US is able to export inflation.

I think Steven Kopits meant Biden, not Yellen, in his comment, since Dr. Janet Yellen hasn’t been Fed chair since 2018; or maybe he did mean Yellen as the person who he blames for fiscal policy. In any case, this graph proves indisputably he is right!

Figure 1: CPI for US (blue), Euro Area (tan), UK (green), Sweden (lilac), Poland (brown), and Korea (sky blue), all not seasonally adjusted, in logs, 2021M01=0. NBER defined peak-to-trough US recession dates shaded gray. Source: BLS, Eurostat, OECD via FRED, and author’s calculations.

Of course, there’s not a lot of empirical evidence to support the view that US monetary policy drives foreign inflation in the way Mr. Kopits posits. See for instance Figure 2 in Caldara, Ferrante, and Queralto (2022). At 8 quarters, the effect of a 100 bps change in the Fed funds rate on foreign inflation is near zero. If you’re not bothered by the lack of empirical evidence, then Swedes (and even more so Poles), blame Powell (or Yellen or Biden, whoever you don’t like) for your troubles! Don’t be troubled that all these countries have exchange rates that float relative to the US dollar…

Figure 2 below depicts year-on-year inflation for these economies.

Figure 2: Year-on-Year CPI inflation for US (blue), Euro Area (tan), UK (green), Sweden (lilac), Poland (brown), and Korea (sky blue). NBER defined peak-to-trough US recession dates shaded gray. Source: BLS, Eurostat, OECD via FRED, and author’s calculations.

dollar
inflation
monetary
policy
fed
us dollar
monetary policy