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State Dependence of Monetary Policy During Global Supply Chain Disruptions

Author

Listed:
  • Xiwen Bai
  • Jesús Fernández-Villaverde
  • Yiliang Li
  • Francesco Zanetti

Abstract

We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off.

Suggested Citation

  • Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li & Francesco Zanetti, 2026. "State Dependence of Monetary Policy During Global Supply Chain Disruptions," CESifo Working Paper Series 12451, CESifo.
    • Handle: RePEc:ces:ceswps:_12451
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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