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Supply Constraints and Conditional Distribution Predictability of Inflation and its Volatility: A Nonparametric Mixed-Frequency Causality-in-Quantiles Approach

Author

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  • Caporin, Massimiliano
  • Gupta, Rangan
  • Subramaniam, Sowmya
  • Torrent, Hudson S.

Abstract

We use a mixed-frequency non-parametric causality-in-quantiles test to detect predictability from newspapers articles-based daily indexes of supply bottlenecks to the conditional distributions of monthly inflation rate and its volatility of China, the European Monetary Union (EMU), the United Kingdom (UK) and the United States (US). Based on a sample period of January 2010 to December 2024, we find that the causal impact of supply bottlenecks on inflation volatility is consistently observed across the four economies, while the same is particularly strong for the inflation rates of the EMU and the UK. The second-moment impact is further emphasized in a forecasting set-up, as we detect statistically significant impact of these supply chain constraints in the prediction of the lower quantiles of inflation volatility. Our findings, robust to alternative model-setting and variable-extension, have important implications for monetary policy decisions.

Suggested Citation

  • Caporin, Massimiliano & Gupta, Rangan & Subramaniam, Sowmya & Torrent, Hudson S., 2026. "Supply Constraints and Conditional Distribution Predictability of Inflation and its Volatility: A Nonparametric Mixed-Frequency Causality-in-Quantiles Approach," Research in Economics, Elsevier, vol. 80(2).
    • Handle: RePEc:eee:reecon:v:80:y:2026:i:2:s1090944326000165
    DOI: 10.1016/j.rie.2026.101128
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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