Cost Pass-Through with Capacity Constraints and International Linkages

Reinhard Ellwanger, Hinnerk Gnutzmann and Piotr Śpiewanowski

Staff Working Papers from Bank of Canada

Abstract: Commodity markets are linked through international trade but are separated by heterogeneous regulations and input markets. We investigate theoretically and empirically how regional, as opposed to global, cost shocks pass through into global prices. Capacity constraints mitigate the output response to regional cost shocks in the short run. Once constraints bind, the pass-through of a cost increase is enhanced while for cost decreases it drops to zero. We study the market for ammonia, a commodity produced largely from natural gas, to highlight the nonlinearity of the cost pass-through and its implications for unilateral climate policies.

Keywords: Climate change; Econometric and statistical methods; Inflation and prices; International topics (search for similar items in EconPapers)
JEL-codes: L13 L65 Q40 Q54 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2023-03
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2023/03/swp2023-16.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-16

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().