Supply chains shocks and inflation in Europe

Jakub Mućk and Lukasz Postek

No 2023-094, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: This article quantifies the effects of supply chains disruptions on inflation in European economies. We apply the local projections method in a panel framework and estimate responses of nine measures of consumer and producer inflation to shortages in materials and equipment reported by enterprises in the business surveys conducted by the European Commission. We find that supply chains disruptions are proinflationary for all considered measures of inflation, and a larger effect can be observed for inflation of prices of goods rather than services. The peak of impulse responses can be observed 4-6 quarters after shock, while the effect usually dies out after 8-12 quarters. The forecast error variance decomposition (FEVD) suggests that supply chain disruptions are much more important in explaining inflation changes at medium- rather than short-run forecast horizon. Moreover, supply chain shocks seem to matter relatively more for the variance of inflation of consumer prices of goods than for other measures of inflation. Interestingly, the positive estimates of the impact of supply chains disruptions on inflation can be related mainly to the period corresponding with the COVID-19 pandemics as well as the full-scale invasion of Ukraine and may exhibit asymmetric or regime-switching nature.

Keywords: supply chains shock; inflation; local projections; panel data (search for similar items in EconPapers)
JEL-codes: C33 E31 E32 F41 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-09
New Economics Papers: this item is included in nep-cis, nep-eec, nep-mac and nep-mon
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http://hdl.handle.net/20.500.12182/1180 (application/pdf)

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Working Paper: Supply chains shocks and inflation in Europe (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2023094

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