Global value chains and the transmission of exchange rate shocks to consumer prices
Résumé
Following the 2008 financial crisis, inflation rates in advanced economies have been at odds with the prediction of a standard Phillips curve. This puzzle has triggered a debate on the global determinants of domestic prices. We contribute to this debate by investigating the impact of exchange rate shocks on consumer prices from 1995 to 2018. We focus on cost-push inflation through global value chains. We build on three sectoral world input-output datasets (WIOD and two versions of TiVA). We assume a Cobb-Douglas production framework and work in a partial equilibrium setting. The construction of World Input-Output tables is data-demanding and WIOTs are typically released with a lag of several years. To address this gap, we use more up-to-date GDP and trade data, thus providing a tool for approximating the partial equilibrium impact of an exchange rate shock on consumer prices from 2015 onwards. Depending on countries, the absolute value of the elasticity of the household consumption expenditure (HCE) deflator to the exchange rate ranges from 0.05 to 0.35, confirming the importance of global value chains in channelling external shocks to domestic inflation. Using data from WIOD on a sample of 43 countries, we find that the mean output-weighted elasticity of the HCE deflator to the exchange rate increased in absolute value from 0.075 in 2000 to 0.094 in 2008. After peaking in 2008, it declined to 0.088 in 2014. Extrapolations based on more up-to-date GDP and trade data suggest that the decline continued until 2016, before reversing in 2017 and 2018. Our findings are robust to using three different datasets.
Domaines
Economies et finances
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