Global Supply Chain Pressures, International Trade, and Inflation

66 Pages Posted: 11 Jul 2022 Last revised: 16 Feb 2023

See all articles by Julian di Giovanni

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Centre for Economic Policy Research (CEPR)

Ṣebnem Kalemli-Özcan

University of Maryland

Alvaro Silva

University of Maryland, College Park

Muhammed A. Yildirim

Koc University - Department of Economics; Harvard University - Center for International Development (CID)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2022

Abstract

We study the impact of the Covid-19 pandemic on Euro Area inflation and how it compares to the experiences of other countries, such as the United States, over the two-year period 2020-21. Our model-based calibration exercises deliver four key results: 1) Compositional effects – the switch from services to goods consumption – are amplified through global input-output linkages, affecting both trade and inflation. 2) Inflation can be higher under sector-specific labor shortages relative to a scenario with no such supply shocks. 3) Foreign shocks and global supply chain bottlenecks played an outsized role relative to domestic aggregate demand shocks in explaining Euro Area inflation over 2020-21. 4) International trade did not respond to changes in GDP as strongly as it did during the 2008-09 crisis despite strong demand for goods. These lower trade elasticities in part reflect supply chain bottlenecks. These four results imply that policies aimed at stimulating aggregate demand would not have produced as high an inflation as the one observed in the data without the negative sectoral supply shocks.

Suggested Citation

di Giovanni, Julian and Kalemli-Özcan, Ṣebnem and Silva, Alvaro and Yildirim, Muhammed A., Global Supply Chain Pressures, International Trade, and Inflation (July 2022). NBER Working Paper No. w30240, Available at SSRN: https://ssrn.com/abstract=4159155

Julian Di Giovanni (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

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HOME PAGE: http://julian.digiovanni.ca

Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

HOME PAGE: http://julian.digiovanni.ca

Ṣebnem Kalemli-Özcan

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Alvaro Silva

University of Maryland, College Park ( email )

Muhammed A. Yildirim

Koc University - Department of Economics ( email )

Rumeli Feneri Yolu
Sariyer 80910, Istanbul
Turkey

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

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