IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/18205.html
   My bibliography  Save this paper

Supply Chain Constraints and Inflation

Author

Listed:
  • Comin, Diego
  • Johnson, Robert
  • Jones, Callum

Abstract

We develop a multisector, open economy, New Keynesian framework to evaluate how potentially binding capacity constraints, and shocks to them, shape inflation. We show that binding constraints for domestic and foreign producers shift domestic and import price Phillips Curves up, similar to reduced-form markup shocks. Further, data on prices and quantities together identify whether constraints bind due to increased demand or reductions in capacity. Applying the model to interpret recent US data, we find that binding constraints explain half of the increase in inflation during 2021-2022. In particular, tight capacity served to amplify the impact of loose monetary policy in 2021, fueling the inflation takeoff.

Suggested Citation

  • Comin, Diego & Johnson, Robert & Jones, Callum, 2023. "Supply Chain Constraints and Inflation," CEPR Discussion Papers 18205, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18205
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP18205
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mariano Kulish & Adrian Pagan, 2017. "Estimation and Solution of Models with Expectations and Structural Changes," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(2), pages 255-274, March.
    2. Adam Cagliarini & Mariano Kulish, 2013. "Solving Linear Rational Expectations Models with Predictable Structural Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 328-336, March.
    3. Francois de Soyres & Ana Maria Santacreu & Henry L. Young, 2023. "Demand-Supply Imbalance during the COVID-19 Pandemic: The Role of Fiscal Policy," Review, Federal Reserve Bank of St. Louis, vol. 105(1), pages 21-50, January.
    4. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
    5. Julian di Giovanni & Ṣebnem Kalemli-Özcan & Alvaro Silva & Muhammed A. Yildirim, 2022. "Global Supply Chain Pressures, International Trade, and Inflation," NBER Working Papers 30240, National Bureau of Economic Research, Inc.
    6. Guerrieri, Luca & Iacoviello, Matteo, 2015. "OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 22-38.
    7. Sims, Eric & Wolff, Jonathan, 2017. "State-dependent fiscal multipliers: Calvo vs. Rotemberg," Economics Letters, Elsevier, vol. 159(C), pages 190-194.
    8. Flora Haberkorn & Anderson Monken & Eva Van Leemput & Henry L. Young, 2021. "Effects of Supply Chain Bottlenecks on Prices using Textual Analysis," FEDS Notes 2021-12-03-2, Board of Governors of the Federal Reserve System (U.S.).
    9. Julian di Giovanni & Şebnem Kalemli-Özcan & Alvaro Silva & Muhammed A. Yıldırım, 2023. "Quantifying the Inflationary Impact of Fiscal Stimulus under Supply Constraints," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 76-80, May.
    10. Mary Amiti & Sebastian Heise & Fatih Karahan & Ayşegül Şahin, 2023. "Inflation Strikes Back: The Role of Import Competition and the Labor Market," NBER Chapters, in: NBER Macroeconomics Annual 2023, volume 38, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard K. Crump & Stefano Eusepi & Marc Giannoni & Ayşegül Şahin, 2022. "The Unemployment-Inflation Trade-off Revisited: The Phillips Curve in COVID Times," NBER Working Papers 29785, National Bureau of Economic Research, Inc.
    2. Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li & Francesco Zanetti, 2024. "The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory," Economics Series Working Papers 1033, University of Oxford, Department of Economics.
    3. Balleer, Almut & Noeller, Marvin, 2023. "Monetary policy in the presence of supply constraints: Evidence from German firm-level data," Ruhr Economic Papers 1060, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Viral V. Acharya & Matteo Crosignani & Tim Eisert & Christian Eufinger, 2023. "How Do Supply Shocks to Inflation Generalize? Evidence from the Pandemic Era in Europe," NBER Working Papers 31790, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mariano Kulish & James Morley & Tim Robinson, 2014. "Estimating DSGE models with forward guidance," Discussion Papers 2014-32A, School of Economics, The University of New South Wales.
    2. Hatcher, Michael, 2022. "Solving linear rational expectations models in the presence of structural change: Some extensions," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    3. Kulish, Mariano & Morley, James & Robinson, Tim, 2017. "Estimating DSGE models with zero interest rate policy," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 35-49.
    4. Callum Jones & Mariano Kulish & Daniel M. Rees, 2022. "International spillovers of forward guidance shocks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(1), pages 131-160, January.
    5. Harrison, Richard & Waldron, Matt, 2021. "Optimal policy with occasionally binding constraints: piecewise linear solution methods," Bank of England working papers 911, Bank of England.
    6. Mariano Kulish & James Morley & Tim Robinson, 2014. "Estimating the expected duration of the zero lower bound in DSGE models with forward guidance," Discussion Papers 2014-32, School of Economics, The University of New South Wales.
    7. Christopher Gibbs & Nigel McClung, 2023. "Does my model predict a forward guidance puzzle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 393-423, December.
    8. Serdar Kabaca & Kerem Tuzcuoglu, 2023. "Supply Drivers of US Inflation Since the COVID-19 Pandemic," Staff Working Papers 23-19, Bank of Canada.
    9. Gomez-Gonzalez, Patricia & Rees, Daniel M., 2018. "Same Spain, less pain?," European Economic Review, Elsevier, vol. 110(C), pages 78-107.
    10. Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li & Francesco Zanetti, 2024. "The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory," Economics Series Working Papers 1033, University of Oxford, Department of Economics.
    11. Wu, Jing Cynthia & Zhang, Ji, 2019. "A shadow rate New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    12. Alex Haberis & Riccardo M. Masolo & Kate Reinold, 2019. "Deflation Probability and the Scope for Monetary Loosening in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 15(1), pages 233-277, March.
    13. Sims, Eric & Wu, Jing Cynthia, 2021. "Evaluating Central Banks’ tool kit: Past, present, and future," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 135-160.
    14. Hirokuni Iiboshi & Mototsugu Shintani & Kozo Ueda, 2022. "Estimating a Nonlinear New Keynesian Model with the Zero Lower Bound for Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1637-1671, September.
    15. Jesper Lindé & Mathias Trabandt, 2018. "Should we use linearized models to calculate fiscal multipliers?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(7), pages 937-965, November.
    16. Daisuke Ikeda & Shangshang Li & Sophocles Mavroeidis & Francesco Zanetti, 2020. "Testing the Effectiveness of Unconventional Monetary Policy in Japan and the United States," IMES Discussion Paper Series 20-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    17. Gutiérrez, Germán & Jones, Callum & Philippon, Thomas, 2021. "Entry costs and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 77-91.
    18. Christopher Gibbs & Nigel McClung, 2023. "Does my model predict a forward guidance puzzle?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 393-423, December.
    19. Bonciani, Dario & Oh, Joonseok, 2023. "Monetary policy inertia and the paradox of flexibility," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    20. Kristina Bluwstein & Michał Brzoza‐Brzezina & Paolo Gelain & Marcin Kolasa, 2020. "Multiperiod Loans, Occasionally Binding Constraints, and Monetary Policy: A Quantitative Evaluation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(7), pages 1691-1718, October.

    More about this item

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:18205. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.