Copyright Page

© 2022 International Monetary Fund

WP/22/31

IMF Working Paper

European Department

Supply Bottlenecks: Where, Why, How Much, and What Next? Prepared by: Oya Celasun, Niels-Jakob Hansen, Aiko Mineshima, Mariano Spector, and Jing Zhou

Authorized for distribution by Oya Celasun February 2022

ABSTRACT: Supply constraints hurt the economic recovery and boosted inflation in 2021. We find that in the euro area, manufacturing output and GDP would have been about 6 and 2 percent higher, respectively, and half of the rise in manufacturing producer price inflation would not have occurred in the absence of supply bottlenecks. Sectors that are more reliant on differentiated inputs—such as autos— were harder hit. Globally, shutdowns can explain up to 40 percent of the supply shocks. Late last year industry experts expected supply shortages for autos to largely dissipate by mid-2022 and broader bottlenecks by end-2022, but given the Omicron wave, disruptions will last for longer, possibly into 2023. With supply constraints adding to price pressures, the challenge for policymakers is to support the recovery without allowing high inflation to become entrenched.

JEL Classification Numbers:	E23, E3
Keywords: [Type Here]	Output, Inflation, Manufacturing, Supply Constraints
Author’s E-Mail Address:	ocelasun@imf.org; nhansen@imf.org; amineshima@imf.org; mspector@imf.org; jzhou@imf.org

View Table

JEL Classification Numbers:	E23, E3
Keywords: [Type Here]	Output, Inflation, Manufacturing, Supply Constraints
Author’s E-Mail Address:	ocelasun@imf.org; nhansen@imf.org; amineshima@imf.org; mspector@imf.org; jzhou@imf.org

Title Page

WORKING PAPERS

Supply Bottlenecks: Where, Why, How Much, and What Next?

Prepared by Oya Celasun, Niels-Jakob Hansen, Aiko Mineshima, Mariano Spector, and Jing Zhou

Table of Contents

• INTRODUCTION

• STYLIZED FACTS

• CONCEPTUAL FRAMEWORK—VARIETIES OF SUPPLY CONSTRAINTS

• IS IT HIGH DEMAND OR CONSTRAINED SUPPLY?

• DRIVERS OF BOTTLENECKS

  • Sectoral diversity

  • Drivers of Country-Level Supply Shocks

• SEMICONDUCTOR SHORTAGES DURING THE PANDEMIC: A PERFECT STORM

• HOW SOON MIGHT SUPPLY BOTTLENECKS EASE

• TAKEAWAYS AND POLICY IMPLICATIONS

• FIGURES

• 1. Real Private Consumption

• 2. Supply Bottlenecks

• 3. Auto Sector: Production and Shortages of Intermediate Inputs

• 4. Impact of Supply Disruptions on Prices and Inflation

• 5a. Demand and Supply Shock

• 5b. Demand Shock and Rigid Supply

• 6. Bivariate SVAR: Impact of Supply Shock on Manufacturing IP, Jan, May, and Sep 2021

• 7. Supply-Demand Decomposition of Manufacturing IP, 2016–2021

• 8. Supply-shock Contribution to the Change in Manufacturing PPI Inflation

• 9. Three variable SVAR: Impact of Supply Shock on Manufacturing IP, Jan, May, and Sep 2021

• 10. Impact of Supply Shocks on 2021 GDP

• 11. Impact of Supply Shocks on PPI and Core CPI

• 12. Impact of Shutdowns: Country Diversity

• 13. Impact of Shutdowns: The Role of Differentiated Goods Inputs

• 14. Drivers of Supply Shocks

• 15. Key Indicators for the Semiconductor Market

• 16. Market Expectations on Supply Normalization and Transport Job Postings

• 17. Frequency of Terms Related to Supply Disruptions in News (weekly average)

• 18. Online News: When Supply/Chip Shortage Eases

• 19. Translating IP Impacts to GDP and Inflation Impacts

• A1.1. Container Throughput

• A1.2. Port Waiting Time and Retail Sales

• A2.1. Historical decompositions of manufacturing IP and PPI inflation, 2016–2021

• A2.2. Historical Decompositions for the Quadratic Trend Version of the Bivariate SVAR Estimation, 2016–2021

• A2.3. Impulse Response Functions for Demand Shocks

• A2.4. Impulse Response Functions for Supply Shocks

• TABLES

• A3.1 Drivers of Supply Shocks

• References

• ANNEXES

• 1: Determinants of Waiting Times in Ports

• 2. Additional SVAR results

• 3. Methodology Used to Assess the Drivers of Supply Bottlenecks

• 4. An Overview of the Semiconductor Industry