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Shipping cost uncertainty, endogenous regime switching and the global drivers of inflation

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  • Anderl, Christina
  • Caporale, Guglielmo Maria

Abstract

The recent Covid-19 pandemic has disrupted global supply chains and led to large increases in shipping costs. This paper provides shipping cost mean and uncertainty measures using the endogenous regime switching model with dynamic feedback and interactions developed by Chang et al. (2023). The uncertainty indicator measures overall risk in the shipping market and is shown to represent a useful addition to the existing set of economic and financial uncertainty indices. Both the shipping cost mean and uncertainty measures are then included in structural VAR models for the US, the UK, and the euro area to examine the pass-through to headline CPI, core CPI, PPI, and import price inflation vis-à-vis other global and domestic shocks. The results suggest that shipping cost uncertainty shocks have sizeable effects on all inflation measures and are characterized by a stronger pass-through than that of other domestic or global shocks. Unlike the latter, they also significantly affect core CPI inflation. These findings imply that shipping cost mean and uncertainty should also be considered by policymakers when assessing the global drivers of inflation.

Suggested Citation

  • Anderl, Christina & Caporale, Guglielmo Maria, 2024. "Shipping cost uncertainty, endogenous regime switching and the global drivers of inflation," International Economics, Elsevier, vol. 178(C).
    • Handle: RePEc:eee:inteco:v:178:y:2024:i:c:s2110701724000234
    DOI: 10.1016/j.inteco.2024.100500
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    More about this item

    Keywords

    Shipping cost uncertainty; Inflation pass-through; Endogenous regime switching;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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