Does chip price cause macroeconomic fluctuations?

Abstract During the COVID-19 pandemic and the subsequent logistical disruptions in global supply chains, the rise in chip prices had significant repercussions on the world economy. This paper simulates macroeconomic fluctuations due to changes in chip prices using a GVAR model, covering the period from 1994 to 2022 for a sample of 27 economies. The analysis reveals a statistically significant relationship between the increase in chip prices and the onset of a global recession, leading to contractions in exports and imports. The model’s estimations highlight that chip prices indirectly affect industrial production and exchange rates by altering international trade variables. These results were further reinforced by several robustness checks. This study underscores the importance of semiconductors to domestic economic stability.