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Geopolitical risk, supply chains, and global inflation

Author

Listed:
  • Omid Asadollah
  • Linda Schwartz Carmy
  • Md. Rezwanul Hoque
  • Hakan Yilmazkuday

Abstract

This paper investigates the effects of global geopolitical risks and global supply chain pressures on global inflation for the monthly period of 1999M1–2022M12. The investigation is based on a structural vector autoregression model, where the effects of global oil prices and global monetary policy are controlled for. Four alternative measures of inflation are used, including headline, core, food, and energy inflation. The empirical results show that disruptions in global supply chains are the main drivers of global inflation in the long run as the corresponding shocks explain the lion's share of volatilities in headline inflation (by 32%), core inflation (by 30%), and food inflation (by 22%), followed by oil price shocks and policy rate shocks. In comparison, energy inflation is explained the most by oil price shocks (by 55%) followed by supply chain shocks and policy rate shocks. Positive supply chain pressure and oil price shocks have positive and statistically significant effects on headline inflation even after five years, whereas positive policy rate shocks have negative and statistically significant effects on headline inflation in the long run. In contrast, positive shocks to geopolitical risk result in higher headline inflation only up to one year, with insignificant effects in the long run. Several policy implications follow.

Suggested Citation

  • Omid Asadollah & Linda Schwartz Carmy & Md. Rezwanul Hoque & Hakan Yilmazkuday, 2024. "Geopolitical risk, supply chains, and global inflation," The World Economy, Wiley Blackwell, vol. 47(8), pages 3450-3486, August.
    • Handle: RePEc:bla:worlde:v:47:y:2024:i:8:p:3450-3486
    DOI: 10.1111/twec.13585
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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