Global versus Domestic Supply Chain Disruptions: Implications for Inflation and Economic Confidence

Abstract

This paper investigates the effects of global and domestic supply chain disruptions on inflation and economic confidence in the United States, Germany, France, Italy, Spain, China, and the United Kingdom. The investigation is based on a structural vector autoregression model covering the monthly sample period between 2010m1-2023m10, where global oil prices and domestic policy rates are controlled for. The results show that shocks to global and domestic supply chain disruptions increase inflation in all countries excluding China, where the effects of global supply chain disruptions are much higher compared to those of domestic supply chain disruptions. These two shocks explain the volatility of inflation by about 51% in the United States and Spain, 36% in the United Kingdom, 22% in France, 17% in Germany, 13% in Italy, and only 7% in China. Shocks to global and domestic supply chain disruptions reduce consumer confidence in all countries, whereas they reduce business confidence in all countries excluding Germany and China. These shocks explain the volatility in consumer confidence with a range between 18% (for France and Italy) and 64% (for the United States), whereas they explain the volatility of business confidence with a range between 10% (for Germany) and 40% (for Spain). Regarding the interaction between global and domestic supply chain distributions, shocks to the former explain the volatility of the latter by about 49% in the United States, 45% in Spain, 26% in the United Kingdom, 25% in China, 18% in France, and 17% in Germany and Italy. Important country-specific policy implications follow regarding international supply chain resilience, business continuity, disaster recovery, and logistics facilitation.

Keywords: Supply Chains, Inflation, Consumer Confidence, Business Confidence

JEL Classification: E31, E52, F62