Global supply chain pressures, inflation, and implications for monetary policy

How should policymakers respond to the recent surge in inflation? This paper examines the impact of global supply chain pressures on euro area inflation and the implications for monetary policy. Results from a Bayesian structural vector autoregressive model show that shocks to global supply chain pr...

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Bibliographic Details
Published in:Journal of international money and finance 2024-04, Vol.142, p.103029, Article 103029
Main Authors: Ascari, Guido, Bonam, Dennis, Smadu, Andra
Format: Article
Language:English
Subjects:
Bayesian techniques
DSGE
Global supply chain pressures
Inflation
Optimal monetary policy
Phillips curve
Vector autoregression
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Summary:How should policymakers respond to the recent surge in inflation? This paper examines the impact of global supply chain pressures on euro area inflation and the implications for monetary policy. Results from a Bayesian structural vector autoregressive model show that shocks to global supply chain pressures were the dominant driver of euro area inflation in 2022, and that these shocks have a highly persistent and hump-shaped impact on inflation. Furthermore, a two country New Keynesian model with international trade in intermediate goods shows that the optimal monetary policy response to global-supply-induced inflation is a non-linear function of the degree of global value chain participation.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2024.103029