Global Value Chain and Inflation Dynamics

By Vu Chau, Marina Conesa Martinez, Taehoon Kim, John A Spray

March 22, 2024

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Vu Chau, Marina Conesa Martinez, Taehoon Kim, and John A Spray. Global Value Chain and Inflation Dynamics, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the inflationary impacts of pandemic lockdown shocks and fiscal and monetary stimulus during 2020-2022 using a novel harmonized dataset of sectoral producer price inflation and input-output linkages for more than 1000 sectors in 53 countries. The inflationary impact of shocks is identified via a Bartik shift-share design, where shares reflect the heterogeneous sectoral exposure to shocks and are derived from a macroeconomic model of international production network. We find that pandemic lockdowns, and subsequent reopening policies, were the most dominant driver of global inflation in this period, especially through their impact on aggregate demand. We provide a decomposition of lockdown shock by sources, and find that between 20-30 percent of the demand effect of lockdown/reopening is due to spillover from abroad. Finally, while fiscal and monetary policies played an important role in preventing deflation in 2020, their effects diminished in the recovery years.

Subject: COVID-19, Economic theory, Fiscal policy, Fiscal stimulus, Health, Inflation, Prices, Supply shocks

Keywords: Asia and Pacific, COVID-19, Fiscal stimulus, Global, Global value chains, Inflation, Inflation dynamics, Lockdown shock, Network, North America, Northern Europe, Pandemic, PPI inflation, Producer price inflation, Reopening policy, Spillovers, Supply shocks

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/062
Stock No:

WPIEA2024062
ISBN:

9798400268847
ISSN:

1018-5941

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