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Highly interconnected global supply chains make countries vulnerable to supply chain disruptions. The authors estimate the macroeconomic effects of global supply chain shocks for the euro area. Their empirical model combines business cycle variables with data from international container trade.
Using a novel identification scheme, they augment conventional sign restrictions on the impulse responses by narrative information about three episodes: the Tohoku earthquake in 2011, the Suez Canal obstruction in 2021, and the Shanghai backlog in 2022. They show that a global supply chain shock causes a drop in euro area real economic activity and a strong increase in consumer prices. Over a horizon of one year, the global supply chain shock explains about 30% of inflation dynamics. They also use regional data on supply chain pressure to isolate shocks originating in China.
Their results show that supply chain disruptions originating in China are an important driver for unexpected movements in industrial production, while disruptions originating outside China are an especially important driver for the dynamics of consumer prices.
The withdrawal of foreign capital from emerging countries at the height of the recent financial crisis and its quick return sparked a debate about the impact of capital flow surges on asset markets. This paper addresses the response of property prices to an inflow of foreign capital. For that purpose we estimate a panel VAR on a set of Asian emerging market economies, for which the waves of inflows were particularly pronounced, and identify capital inflow shocks based on sign restrictions. Our results suggest that capital inflow shocks have a significant effect on the appreciation of house prices and equity prices. Capital inflow shocks account for - roughly - twice the portion of overall house price changes they explain in OECD countries. We also address crosscountry differences in the house price responses to shocks, which are most likely due to differences in the monetary policy response to capital inflows.
How do fiscal and technology shocks affect real exchange rates? : New evidence for the United States
(2008)
Using vector autoregressions on U.S. time series relative to an aggregate of industrialized countries, this paper provides new evidence on the dynamic effects of government spending and technology shocks on the real exchange rate and the terms of trade. To achieve identification, we derive robust restrictions on the sign of several impulse responses from a two-country general equilibrium model. We find that both the real exchange rate and the terms of trade – whose responses are left unrestricted – depreciate in response to expansionary government spending shocks and appreciate in response to positive technology shocks.