Working Paper: CEPR ID: DP17259
Authors: Yan Carriereswallow; Pragyan Deb; Davide Furceri; Daniel Jimenez; Jonathan D Ostry
Abstract: The Covid-19 pandemic has disrupted global supply chains, leading to shipment delays andsoaring shipping costs. We study the impact of shocks to global shipping costs—measured by theBaltic Dry Index (BDI)—on domestic prices for a large panel of countries during the period1992-2021. We find that spikes in the BDI are followed by sizable and statistically significantincreases in import prices, PPI, headline, and core inflation, as well as inflation expectations. Theimpact is similar in magnitude but more persistent than for shocks to global oil and food prices.The effects are more muted in countries where imports make up a smaller share of domesticconsumption, and those with inflation targeting regimes and better anchored inflationexpectations. The results are robust to several checks, including an instrumental variablesapproach in which we instrument changes in shipping costs with an indicator of closures of theSuez Canal.
Keywords: price shocks; shipping cost; inflation; passthrough; monetary policy
JEL Codes: E31; E37; Q43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| global shipping costs (BDI) (F69) | domestic inflation (E31) |
| global shipping costs (BDI) (F69) | core inflation (E31) |
| global shipping costs (BDI) (F69) | import prices (P22) |
| global shipping costs (BDI) (F69) | producer prices (P22) |
| higher share of imports in consumption (F62) | impact of shipping costs on inflation (E31) |
| weaker monetary frameworks (E42) | impact of shipping costs on inflation (E31) |
| shipping costs (L87) | inflation expectations (E31) |
| shipping costs (L87) | price levels (E30) |