Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297401 
Year of Publication: 
2023
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2023-16
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Commodity markets are linked through international trade but are separated by heterogeneous regulations and input markets. We investigate theoretically and empirically how regional, as opposed to global, cost shocks pass through into global prices. Capacity constraints mitigate the output response to regional cost shocks in the short run. Once constraints bind, the pass-through of a cost increase is enhanced while for cost decreases it drops to zero. We study the market for ammonia, a commodity produced largely from natural gas, to highlight the nonlinearity of the cost pass-through and its implications for unilateral climate policies.
Subjects: 
Climate change
International topics
Inflation and prices
Econometric and statistical methods
JEL: 
L13
L65
Q54
Q40
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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