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Global Value Chains and Inflation

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Grand Hyatt, Lone Star Ballroom Salon B
This session was streamed live.
Hosted By: American Economic Association
  • Chair: David Weinstein, Columbia University

How Much Do Global Factors Drive Domestic Inflation?

Oleg Itskhoki
,
University of California-Los Angeles
Mary Amiti
,
Federal Reserve Bank of New York
David Weinstein
,
Columbia University

Abstract

Inflation has sky-rocketed in many countries around the world since Covid. This has generated a big debate on the underlying causes. In this paper, we exploit the heterogeneity across industries and across countries to help identify the drivers of inflation. We construct new instruments that separate global shocks from idiosyncratic demand and supply shocks. We find the largest contributor to domestic inflation are global shocks.

Supply Disruptions and Fiscal Stimulus: Transmission through Global Value Chains

Francois de Soyres
,
Federal Reserve Board
Alexandre Gaillard
,
Princeton University
Jesse LaBelle
,
Federal Reserve Bank of St Louis
Ana Maria Santacreu
,
Federal Reserve Bank of St. Louis

Abstract

We examine the propagation of fiscal stimulus and supply chain disruptions through global value chains (GVC) and their impact on inflation, with a specific focus on the COVID-19 pandemic. We investigate the persistent effects of fiscal stimulus on inflation dynamics, taking into account factors such as excess savings and the role of monetary policy. By examining the connections between supply disruptions, fiscal measures, and inflation, we uncover the mechanisms by which these factors propagate throughout GVCs, providing insights into the dynamics of inflation.

Unbundling Import Constraints

Diego Comin
,
Dartmouth College
Robert C. Johnson
,
University of Notre Dame
Callum Jones
,
Federal Reserve Board

Abstract

Since 2020, a panoply of shocks have buffeted global supply chains, including foreign manufacturing shutdowns, port blockages, shipping congestion, inventory shortages, energy and raw material shocks, and export bans.  This paper provides a framework with occasionally binding import constraints to analyze these alternative shocks, fixing ideas about what distinguishes them and how they impact domestic and import price inflation.  A first key idea is that foreign firms internalize firm-level constraints in their price-setting decisions, but ignore aggregate constraints in standard models.  A second is that aggregate constraints may be either priced or unpriced, depending on how property rights are assigned, which determines how they impact inflation.  A third idea is that even unpriced aggregate constraints may impact inflation, if they serve to trigger binding constraints for downstream firms and retailers.  We link these broad ideas to the concrete types of supply chain disruptions above, and we discuss how data could distinguish between which constraints contribute to inflation.
JEL Classifications
  • F0 - General
  • E0 - General