The Macroeconomic Effects of Global Supply Chain Shocks

This paper establishes global supply chain shocks as key drivers of business cycle fluctuations, introducing a novel identification strategy based on the narrative analysis of price surcharges from the three largest container shipping companies. Negative shocks cause a persistent rise in consumer prices and a prolonged decline in economic activity. The response is broad-based. Sectoral impacts vary with exposure to global supply chains, measured by the share of inputs sourced from abroad. Spillovers extend to non-tradable sectors. These shocks accounted for up to 51 percent of the post-pandemic inflation. If there had been only global supply chain shocks with no monetary or fiscal stimulus, recovery would have been delayed by 18 months. Global supply chain shocks explain 35 percent of the long-run variance of consumer prices and 24 percent of industrial production over the business cycle.