Supply Chain Constraints and Inflation

Diego Comin, Robert C. Johnson and Callum Jones
Additional contact information
Diego Comin: Dartmouth College, NBER, and CEPR (E-mail: diego.comin@dartmouth.edu)
Robert C. Johnson: University of Notre Dame, and NBER (E-mail: rjohns24@nd.edu)
Callum Jones: Federal Reserve Board (E-mail: callum.j.jones@frb.gov)

No 25-E-15, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

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.

Keywords: inflation; supply chain; occasionally binding constraints (search for similar items in EconPapers)
JEL-codes: D24 E31 E52 E62 F63 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-cba, nep-dge, nep-inv, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:25-e-15

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