Inflationary supply chain disruptions: Time-varying and cross-country evidence

Abstract

The COVID-19 pandemic created an unprecedented economic environment marked by severe disruptions in global supply chains and elevated inflation. This paper empirically examines the dynamic relationship between supply chain disruptions and inflation over time and across countries using structural VAR models with time-varying parameters and stochastic volatility. We find that global supply chain shocks significantly raise consumer prices in all countries in our sample, and consistently so even before the pandemic. However, the inflationary responses are larger and/or more persistent during economic expansions, providing suggestive evidence of state-dependent effects of global supply chain shocks. Moreover, global supply chain shocks are economically important, accounting for up to 28% of the variation in consumer price inflation.

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