Geopolitical Risk, Supply Chains, and Global Inflation

Omid Asadollah (), Linda Carmy (), Md. Hoque () and Hakan Yilmazkuday
Additional contact information
Omid Asadollah: Florida International University
Linda Carmy: Florida International University
Md. Hoque: Florida International University

No 2406, Working Papers from Florida International University, Department of Economics

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.

Keywords: Geopolitical Risk; Supply Chains; Global Inflation; Oil Prices; Policy Rates (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F62 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2024-06
New Economics Papers: this item is included in nep-ene, nep-int and nep-mon
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Citations: View citations in EconPapers (3)

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Journal Article: Geopolitical risk, supply chains, and global inflation (2024)
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