Copyright Page
© 2023 International Monetary Fund
WP/23/42
IMF Working Paper
Research Department
Assessing the Impact of Supply Disruptions on the Global Pandemic Recovery
Prepared by Harri Kemp, Rafael Portillo, and Marika Santoro
Authorized for distribution by Benjamin Hunt
February 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: We estimate the role of (pre-Ukraine war) supply disruptions in constraining the Covid-19 pandemic recovery, for several advanced economies and emerging markets, and globally. We rely on two approaches. In the first approach, we use sign-restricted Vector Auto Regressions (SVAR) to identify supply and demand shocks in manufacturing, based on the co-movement of surveys on new orders and suppliers’ delivery times. The effects of these shocks on industrial production and GDP are recovered through a combination of local projection methods and the input-output framework in Acemoglu et al. (2016). In the second approach, we use the IMF’s G20 model to gauge the importance of supply shocks in jointly driving activity and inflation surprises. We find that supply disruptions subtracted between 0.5 and 1.2 percent from global value added during the global recovery in 2021, while also adding about 1 percent to global core inflation that same year.
| JEL Classification Numbers: | E3, E23 |
| Keywords: | Supply constraints; manufacturing; output; inflation |
| Author’s E-Mail Address: | jkemp@imf.org; rportilloocando@imf.org; msantoro@imf.org |
| JEL Classification Numbers: | E3, E23 |
| Keywords: | Supply constraints; manufacturing; output; inflation |
| Author’s E-Mail Address: | jkemp@imf.org; rportilloocando@imf.org; msantoro@imf.org |
Contents
Introduction
Background and Stylized Facts
Methodology and Estimation Results
Sign restricted VAR
Identification of supply and demand shocks
Impact of 2021 supply shocks on industrial production
Impact of 2021 supply shocks on global trade
Impact of 2021 supply shocks on GDP
Extending the empirical analysis to 2022
Correlation between supply and demand shocks
Structural simulations using the IMF G20 Model
Impact of supply shocks on GDP and core inflation
Sensitivity Analysis: The slope of the Phillips curve
Conclusion
References
Annex I. Additional SVAR Results
Annex II. Impulse Response Functions (IRFs)
Annex III. Additional Charts
FIGURES
Figure 1. Manufacturing Suppliers’ Delivery Times
Figure 2. New Orders, Suppliers’ Delivery Times, and Real Consumption
Figure 3. Supply Bottlenecks and Inflation
Figure 4. Supply-Demand Decomposition of Global New Orders and Suppliers’ Delivery Times
Figure 5. Supply-Demand Decomposition of Suppliers’ Delivery Times: AEs vs EMs
Figure 6. Impact of 2021 Supply Shocks on 2021 Manufacturing IP
Figure 7: Global Trade Volumes
Figure 8: Impact of Supply Shocks on 2021 Global Trade Volumes
Figure 9. Impact of 2021 Supply Shocks on GDP
Figure 10. Supply-Demand Decomposition of Global New Orders and Suppliers’ Delivery Times
Figure 11. Impact of 2022 Supply and Demand Shocks on Global IP
Figure 12. Relationship between Global Supply and Demand Shocks
Figure 13: Stylized Representation
Figure 14. Growth and Inflation Deviation from pre-Covid Baseline
Figure 15. Impact of 2021 Supply Shocks GDP Growth and Core Inflation
Figure 16. Growth and Inflation Deviations: Phillips Curve Comparison
TABLES
Table 1: Global Cost Shares