Supply Chain Constraints and Inflation

Diego Comin, Robert Johnson and Callum Jones

No 18205, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

JEL-codes: E12 E31 F41 (search for similar items in EconPapers)
Date: 2023-06
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Working Paper: Supply Chain Constraints and Inflation (2023)
Working Paper: Supply Chain Constraints and Inflation (2023)
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