Abstract:
This study aims to investigate the determinants of inflation in Western countries specifically focusing on
the impact of covid-19 pandemic and the Russian -Ukraine war. To do this an economic analysis is done
on a panel of 9 western countries over the period of 2020-2024 with data in trimester. We use secondary
data from Organization for Economic Cooperation and Development (OECD) and the chosen variables
based on existing literature are; short-term interest rates, exchange rates, consumer prix index of energy,
production and global gross domestic product which are the independent variables used to explain the
dependent variable inflation. The variables undergo a stationarity test and the integration test before being
estimated by the GMM panel dynamic model.
The results emphasize on the importance of lowering interest rates to reduce inflationary pressures which
play a significant role stabilizing the economy in western countries. Consumer prix index of energy and
gross domestic product also influenced positively and significantly the surge of inflation during the Covid
19 and the Russian-Ukraine war. Production and exchange rates were found to negatively affect inflation
though non-significant during this period. In order to reduce inflationary pressures its recommended that
the Central bank appreciate the national currency and to boost production to maintain economic stability
