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 thecoronavirus disease 2019 (COVID-19) pandemic. Since the highest spread of the disease isobserved in the European countries, it is worthwhile to investigate the macroeconomicindicators in the European Union (EU) member and the candidate countries. Inflation is one ofthe most important indicators to examine since it may directly affect many macroeconomicvariables. In this study, the determinants of inflation in the 28 EU members and candidatestates are investigated.Material and Methods: In this study, the determinants of inflation in the 28 EU members andcandidate 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 werereasons of the increase in inflation. There is also increasing pressure on the inflation rates dueto the domestic money supply and exchange rate variables as well as the neighborhoodrelations between countries (positive spatial effects).Conclusion: It is an important finding that macroeconomic problems in each sample countryare also affected by developments in neighboring countries as well as internal dynamics.Continuous development of economic, social, and political cooperation between neighboringcountries 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 industriesin case of global disasters. Regional cooperation should not be limited to the development ofsectors that stand out during the pandemic period.