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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.
Agriculture: Aggregate Supply and Demand Analysis --- Communicable diseases --- Covid-19 --- Currency crises --- Deflation --- Diseases: Contagious --- Economic & financial crises & disasters --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Economics of specific sectors --- Economics --- Economics: General --- Fiscal Policy --- Fiscal policy --- Fiscal stimulus --- Globalization --- Globalization: General --- Health Behavior --- Health --- Infectious & contagious diseases --- Inflation --- Informal sector --- Macroeconomics --- Open Economy Macroeconomics --- Price Level --- Prices --- Supply and demand --- Supply shocks --- Trade: General
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As climate change accelerates, the frequency and severity of extreme weather events are expected to worsen and have greater adverse consequences for ecosystems, physical infrastructure, and economic activity across the world. This paper investigates how weather anomalies affect global supply chains and inflation dynamics. Using monthly data for six large and well-diversified economies (China, the Euro area, Japan, Korea, the United Kingdom, and the United States) over the period 1997-2021, we implement a structural vector autoregressive model and document that weather anomalies could disrupt supply chains and subsequently lead to inflationary pressures. Our results—based on high-frequency data and robust to alternative estimation methodologies—show that these effects vary across countries, depending on the severity of weather shocks and vulnerability to supply chain disruptions. The impact of weather shocks on supply chains and inflation dynamics is likely to become more pronounced with accelerating climate change that can have non-linear effects. These findings have important policy implications. Central bankers should consider the impact of weather anomalies on supply chains and inflation dynamics to prevent entrenching second-round effects and de-anchoring of inflation expectations. More directly, however, governments can invest more for climate change adaptation to strengthen critical infrastructure and thereby minimize supply chain disruptions.
Agriculture: Aggregate Supply and Demand Analysis --- Business Fluctuations --- Climate change --- Climate --- Climatic changes --- Communicable diseases --- Corporate Finance and Governance: General --- Covid-19 --- Currency crises --- Cycles --- Deflation --- Diseases: Contagious --- Economic & financial crises & disasters --- Economic theory & philosophy --- Economic Theory --- Economic theory --- Economics of specific sectors --- Economics --- Economics: General --- Empirical Studies of Trade --- Environment --- Environmental Economics --- Global Warming --- Globalization: Macroeconomic Impacts --- Health Behavior --- Health --- Infectious & contagious diseases --- Inflation --- Informal sector --- International Financial Markets --- Macroeconomics --- Natural Disasters and Their Management --- Natural Disasters --- Natural disasters --- Price Level --- Prices --- Supply and demand --- Supply shocks
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