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

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  • 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.

Suggested Citation

  • Reinhard Ellwanger & Hinnerk Gnutzmann & Piotr Śpiewanowski, 2025. "Cost Pass‐Through in Commodity Markets With Capacity Constraints and International Linkages," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(2), pages 149-163, March.
    • Handle: RePEc:wly:japmet:v:40:y:2025:i:2:p:149-163
    DOI: 10.1002/jae.3098
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