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Effects of supply chain bottlenecks and fiscal stimulus on inflation dynamics in the COVID-19 pandemic era: a case of South Korea

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  • Ke Chen
  • Jongheuk Kim

Abstract

We employ an augmented New Keynesian Phillips curve, integrating a global supply chain bottleneck index and comprehensive fiscal stimulus packages, to quantitatively examine the impact of these variables on inflation rates in South Korea using monthly time-series data from 2010 to 2023. The results reveal three key findings. First, the Global Supply Chain Pressure Index (GSCPI), serving as a proxy for global supply chain bottlenecks, has an overall statistically insignificant effect on inflation throughout the observation period. However, during the pandemic, its effect on inflation was statistically significant. Second, the detrended government stimulus packages, proxied by government transfers or government fixed investment, also demonstrated a significant escalating effect on inflation during the pandemic. These findings suggest that both cost-push and demand-pull factors contributed to recent inflation surges. Third, conventional determinants of inflation, such as expected inflation, the domestic output gap, and crude oil prices, consistently influence inflation, aligning with existing literature.

Suggested Citation

  • Ke Chen & Jongheuk Kim, 2025. "Effects of supply chain bottlenecks and fiscal stimulus on inflation dynamics in the COVID-19 pandemic era: a case of South Korea," Applied Economics, Taylor & Francis Journals, vol. 57(41), pages 6483-6496, September.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:41:p:6483-6496
    DOI: 10.1080/00036846.2024.2385750
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