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Supply Chain Constraints and Inflation

  • Series
  • Speaker(s)
    Callum J. Jones (Federal Reserve Board, United States)
  • Field
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Van der Goot, room M3-03
  • Date and time

    May 15, 2023
    11:30 - 12:30

We develop a multisector, open economy, 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, similar to reduced-form markup shocks. 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 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, fuelling the inflation takeoff.

This is joint work with Diego Comin and Robert Johnson.

Lunch will be provided. Please register here if you would like meet the speaker for a bilateral, join for lunch or dinner.