International inflation spillovers: The role of different shocks^∗

How do international price fluctuations spill over to country-specific inflation? We show that accounting for the drivers of international inflation and their effects on overall economic conditions is crucial to getting a more thorough view of spillover effects. We find substantial heterogeneity in the mag-nitude of spillovers, depending on the shocks driving inflation abroad. While all identified shocks are inflationary, their effects on activity, interest rates, and exchange rates differ. Disaggre-gated price responses suggest that these general equilibrium effects are important. We show this by looking at spillovers to Switzerland using a structural dynamic factor model relating disaggregated prices to key macroeconomic factors.