Inflation: Demand Pull or Cost Push? A Markov Switching Approach
-
Pu Chen
and
Willi Semmler
Abstract
In this paper, we develop a Markov switching method to quantify the relative contributions of cost-push and demand-pull to current inflationary pressures. This approach aids in studying whether the inflation is short-lived or more persistent. We apply this method to Australian data and identify three episodes in the last 25 years when the inflation rate exceeded 4 %. All three episodes were primarily driven by cost-push factors. Our results reveal that monetary policy is more effective in controlling demand-pull inflation but less so in controlling cost-push inflation. This observation explains why the episodes of relatively higher inflation were predominantly driven by cost-push factors. Furthermore, we contrast our findings with US inflation drivers.
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Supplementary Material
This article contains supplementary material (https://doi.org/10.1515/snde-2023-0119).
© 2025 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Frontmatter
- Interview
- From Model Misspecification to Multidimensional Welfare: A Conversation with Professor Esfandiar Maasoumi
- Research Articles
- A Test for Time-Varying Smooth Transition Conditional Covariance Models in Multivariate Time Series
- Quasi-Maximum Likelihood for Estimating Structural Models
- Monetary Policy Uncertainty in the United States and Investment Sentiment in Advanced Economies
- Inflation: Demand Pull or Cost Push? A Markov Switching Approach
- Divisia Monetary Aggregates for India
- Introducing sspaneltvp: A Code to Estimating State-Space Time-Varying Parameter Models in Panels. An Application to Okun’s Law
Articles in the same Issue
- Frontmatter
- Interview
- From Model Misspecification to Multidimensional Welfare: A Conversation with Professor Esfandiar Maasoumi
- Research Articles
- A Test for Time-Varying Smooth Transition Conditional Covariance Models in Multivariate Time Series
- Quasi-Maximum Likelihood for Estimating Structural Models
- Monetary Policy Uncertainty in the United States and Investment Sentiment in Advanced Economies
- Inflation: Demand Pull or Cost Push? A Markov Switching Approach
- Divisia Monetary Aggregates for India
- Introducing sspaneltvp: A Code to Estimating State-Space Time-Varying Parameter Models in Panels. An Application to Okun’s Law
