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<p>This study investigates the impact of global cost-push shocks—specifically exchange rate movements, international oil prices, and freight indices—on South Korea’s domestic producer price inflation. Utilizing multi-regional input–output (MRIO) tables covering 63 countries and a time-varying factor-augmented vector autoregression (FAVAR) model, the research isolates "pure domestic production-cost shocks" by controlling for pressures transmitted through global supply chains. The empirical analysis demonstrates that an appreciation of the Korean won reduces domestic production costs, whereas increases in international oil prices and freight indices drive them higher. Findings reveal that South Korea’s producer inflation exhibits a 66% co-movement with its trading partners, with approximately 11% of this inflation directly attributable to global supply chain linkages. Furthermore, the study identifies a positive correlation between participation in global value chains (GVCs) and inflation synchronization, noting that manufacturing and GVC-related sectors are significantly more sensitive to external disruptions than the service sector. The results highlight that the vulnerability of South Korea’s industrial structure to energy and supply chain shocks necessitates a multi-faceted policy approach. Beyond monetary policy’s role in preventing second-round effects, the authors emphasize the importance of medium- to long-term strategies, including diversifying raw material supply chains and enhancing domestic production capacity for critical materials.</p>

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The impact of global cost-push shocks on production costs

  • 期刊论文

  • 发表日期：

    2026年5月30日

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  • Bongseok Choi,
  • Hyun Hak Kim,
  • Sangho Shin

摘要

This study investigates the impact of global cost-push shocks—specifically exchange rate movements, international oil prices, and freight indices—on South Korea’s domestic producer price inflation. Utilizing multi-regional input–output (MRIO) tables covering 63 countries and a time-varying factor-augmented vector autoregression (FAVAR) model, the research isolates "pure domestic production-cost shocks" by controlling for pressures transmitted through global supply chains. The empirical analysis demonstrates that an appreciation of the Korean won reduces domestic production costs, whereas increases in international oil prices and freight indices drive them higher. Findings reveal that South Korea’s producer inflation exhibits a 66% co-movement with its trading partners, with approximately 11% of this inflation directly attributable to global supply chain linkages. Furthermore, the study identifies a positive correlation between participation in global value chains (GVCs) and inflation synchronization, noting that manufacturing and GVC-related sectors are significantly more sensitive to external disruptions than the service sector. The results highlight that the vulnerability of South Korea’s industrial structure to energy and supply chain shocks necessitates a multi-faceted policy approach. Beyond monetary policy’s role in preventing second-round effects, the authors emphasize the importance of medium- to long-term strategies, including diversifying raw material supply chains and enhancing domestic production capacity for critical materials.