Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation

Journal article


Anderl, C. and Caporale, G. (2024). Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation. International Economics.
AuthorsAnderl, C. and Caporale, G.
Abstract

The recent Covid-19 pandemic has disrupted global supply chains and led to large increases in shipping costs. This paper first provides shipping cost mean and uncertainty measures by 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 characterised by a stronger pass-through than that of other domestic or global shocks. Unlike the latter, they also affect significantly 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.

KeywordsShipping cost uncertainty, inflation pass-through, endogenous regime switching
Year2024
JournalInternational Economics
PublisherInternational Economics
ISSN2542-6869
Web address (URL)https://www.sciencedirect.com/science/article/pii/S2110701724000234
Publication process dates
Accepted25 Mar 2024
Deposited26 Mar 2024
Accepted author manuscript
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https://openresearch.lsbu.ac.uk/item/96wyv

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