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State Dependence of Monetary Policy During Global Supply Chain Disruptions

Author

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

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

  • Francesco Zanetti & Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li, 2026. "State Dependence of Monetary Policy During Global Supply Chain Disruptions," CIGS Working Paper Series 26-007E, The Canon Institute for Global Studies.
    • Handle: RePEc:cnn:wpaper:26-007e
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