Abstract
Can the sharp rises in US inflation and inflation compensation in 2021 signal a return of inflation worldwide? In addition to international spillovers from US headline inflation, this paper provides evidence of quantitatively important effects from US inflation compensation not only on domestic but also on international inflation. Specifically, using the euro area as an example, we unveil an expectation channel that operates through inflation compensation markets and reinforces international spillovers from US inflation. These spillovers suggest that the implementation of average inflation targeting by the US Federal Reserve could be an important factor in the recovery of euro area and worldwide inflation.
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