Macroeconomic Effects of Maritime Transport Costs Shocks: Evidence from the South Korean Economy

Author:

Ding Xingong1ORCID,Choi Yong-Jae1

Affiliation:

1. Department of International Trade, Jeonbuk National University, Jeonju 54896, Republic of Korea

Abstract

In the aftermath of the COVID-19 pandemic, the dramatic increase in maritime transport costs might potentially exert detrimental impacts on the macroeconomy, especially for countries that heavily rely on international trade for their consumption and production activities. Our study employs a small open economy DSGE (Dynamic Stochastic General Equilibrium) model to analyze the impact of maritime transport costs on the South Korean macroeconomy, where maritime transport costs are considered as key factors impacting the law of one price. Positive shocks in maritime transport costs, according to the impulse response function, have positive repercussions on the Consumer Price Index (CPI), terms of trade, nominal exchange rates, and nominal interest rates, but can negatively affect real output and real exchange rate. To verify the validity of the our DSGE model, we utilize a Vector autoregression with exogenous variables (VARX) model to examine the dynamic relationship between maritime transport costs and South Korean macroeconomic variables, based on quarterly data from the first quarter of 2002 to the fourth quarter of 2022. The results of the VARX model coincide with those of the DSGE model. Our findings underline the importance of maritime transport costs in the macroeconomy and hold substantial implications for the considered design and selection of policies to mitigate such shocks.

Publisher

MDPI AG

Subject

General Mathematics,Engineering (miscellaneous),Computer Science (miscellaneous)

Reference47 articles.

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3. Carrière-Swallow, Y., Deb, P., Furceri, D., Jiménez, D., and Ostry, J.D. (2022). How Soaring Shipping Costs Raise Prices around the World, International Monetary Fund. Available online: https://www.imf.org/en/Blogs/Articles/2022/03/28/how-soaring-shipping-costs-raise-prices-around-the-world.

4. The Relationship between Shipping Freight Rates and Inflation in the Euro Area;Michail;Int. Econ.,2022

5. United Nations Conference on Trade and Development (UNCTAD) (2021). Container Shipping in Times of COVID-19: Why Freight Rates Have Surged, and Implications for Policymakers, UNCTAD. UNCTAD Policy Brief No. 84.

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