State Dependence of Monetary Policy During Global Supply Chain Disruptions

Xiwen Bai, Jesus Fernandez-Villaverde, Yiliang Li and Francesco Zanetti

No 12451, CESifo Working Paper Series from CESifo

Abstract: We study how global supply chain disruptions affect monetary policy transmission. Post-pandemic evidence indicates surging transportation costs, goods-market imbalances, and rising prices. We develop a model in which logistical bottlenecks (upstream slack coexisting with downstream shortages) steepen the aggregate supply curve. This convexity amplifies price responses to monetary policy while dampening output effects. Threshold VAR and Local Projection estimates are consistent with this mechanism: during disruptions, contractionary policy reduces prices more at smaller output cost, easing the stabilization trade-off.

Keywords: monetary policy; supply chain disruption; state dependence; convex supply curve; inflation (search for similar items in EconPapers)
JEL-codes: C32 E31 E32 E52 (search for similar items in EconPapers)
Date: 2026
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