Global Value Chain and Inflation Dynamics
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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.
Series:
Working Paper No. 2024/062
Subject:
COVID-19 Economic theory Fiscal policy Fiscal stimulus Health Inflation Prices Supply shocks
Frequency:
regular
English
Publication Date:
March 22, 2024
ISBN/ISSN:
9798400268847/1018-5941
Stock No:
WPIEA2024062
Format:
Paper
Pages:
57
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