Macroeconomic regime change and the size of supply chain disruption and energy supply shocks

The COVID-19 pandemic and Russia’s invasion of Ukraine have complicated macroeconomic forecasting and policymaking due to unprecedented disruptions in supply chains and energy markets, suggesting a new macroeconomic regime. However, we are unable to reject the null hypothesis of no structural break in March 2020. We then examine whether these shocks have increased post-COVID-19. Their sizes were initially elevated, but then have been gradually returning to pre-pandemic levels. The linear and nonlinear models reveal that supply chain disruptions cause persistent increases in expected inflation and headline goods prices, while energy supply shocks have a transitory inflation effect. The nonlinear model shows that real GDP is adversely affected by supply shocks in low growth periods.