Cost Pass-Through in Commodity Markets With Capacity Constraints and International Linkages

authored by

Reinhard Ellwanger, Hinnerk Gnutzmann, Piotr Śpiewanowski

Abstract

We examine how regional cost shocks are passed through into the prices of globally traded energy-intensive commodities. We find that the pass-through of local costs is influenced by production capacity in the short run. When capacity constraints become binding, the pass-through of cost shocks to the constrained region diminishes to zero. Our application to the market for ammonia, a commodity largely produced from natural gas, demonstrates the significance of capacity constraints and international market linkages for empirical pass-through models.

Organisation(s)

Institute of Macroeconomics

External Organisation(s)

Bank of Canada
Instytut Chemii Bioorganicznej Polskiej Akademii Nauk

Type

Article

Journal

Journal of applied econometrics

Volume

40

Pages

149-163

No. of pages

15

ISSN

0883-7252

Publication date

04.03.2025

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Social Sciences (miscellaneous), Economics and Econometrics

Electronic version(s)

https://doi.org/10.1002/jae.3098 (Access: Closed)