Hybrideseminar – Global supply chain pressures, inflation, and implications for monetary policy

How should policymakers respond to the recent surge in inflation? This paper examines the impact of global supply chain pressures on euro area inflation and the implications for monetary policy. A Phillips curve analysis shows that global supply chain pressures contribute positively and significantly to inflation in the euro area. Furthermore, results from a Bayesian structural vector autoregressive model show that shocks to global supply chain pressures were the dominant driver of euro area inflation in 2022, and that these shocks have a highly persistent and hump-shaped impact on inflation. Finally, a two-country New Keynesian model with trade in intermediate goods shows that the optimal monetary policy response to global-supply-induced inflation is a non-linear function of the degree of global value chain participation.