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

Christina Anderl and Guglielmo Maria Caporale

International Economics, 2024, vol. 178, issue C

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.

Keywords: Shipping cost uncertainty; Inflation pass-through; Endogenous regime switching (search for similar items in EconPapers)
JEL-codes: C13 E31 E37 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Shipping Cost Uncertainty, Endogenous Regime Switching and the Global Drivers of Inflation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:178:y:2024:i:c:s2110701724000234

DOI: 10.1016/j.inteco.2024.100500

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