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Supply Chain Constraints and Inflation

Author

Listed:
  • Diego Comin

    (Dartmouth College, NBER, and CEPR (E-mail: diego.comin@dartmouth.edu))

  • Robert C. Johnson

    (University of Notre Dame, and NBER (E-mail: rjohns24@nd.edu))

  • Callum Jones

    (Federal Reserve Board (E-mail: callum.j.jones@frb.gov))

Abstract

We develop a 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. 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 in the goods sector 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

  • Diego Comin & Robert C. Johnson & Callum Jones, 2025. "Supply Chain Constraints and Inflation," IMES Discussion Paper Series 25-E-15, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:25-e-15
    as

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    File URL: https://www.imes.boj.or.jp/research/papers/english/25-E-15.pdf
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    References listed on IDEAS

    as
    1. Raphael Lafrogne-Joussier & Julien Martin & Isabelle Mejean, 2023. "Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 71(1), pages 170-215, March.
    2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    3. Callum J. Jones & Mariano Kulish & James Morley, 2021. "A Structural Measure of the Shadow Federal Funds Rate," Finance and Economics Discussion Series 2021-064, Board of Governors of the Federal Reserve System (U.S.).
    4. Francesco Bianchi & Renato Faccini & Leonardo Melosi, 2023. "A Fiscal Theory of Persistent Inflation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(4), pages 2127-2179.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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