Assessing the Impact of Supply Disruptions on the Global Pandemic Recovery
AssessingtheImpactofSupplyDisruptionsontheGlobalPandemicRecovery PreparedbyHarriKemp,RafaelPortillo,andMarikaSantoroWP/23/42 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 FEB ©2023InternationalMonetaryFundWP/23/42 IMFWorkingPaper ResearchDepartment AssessingtheImpactofSupplyDisruptionsontheGlobalPandemicRecoveryPreparedbyHarriKemp,RafaelPortillo,andMarikaSantoro AuthorizedfordistributionbyBenjaminHuntFebruary2023 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:Weestimatetheroleof(pre-Ukrainewar)supplydisruptionsinconstrainingtheCovid-19pandemicrecovery,forseveraladvancedeconomiesandemergingmarkets,andglobally.Werelyontwoapproaches.Inthefirstapproach,weusesign-restrictedVectorAutoRegressions(SVAR)toidentifysupplyanddemandshocksinmanufacturing,basedontheco-movementofsurveysonnewordersandsuppliers’deliverytimes.TheeffectsoftheseshocksonindustrialproductionandGDParerecoveredthroughacombinationoflocalprojectionmethodsandtheinput-outputframeworkinAcemogluetal.(2016).Inthesecondapproach,weusetheIMF’sG20modeltogaugetheimportanceofsupplyshocksinjointlydrivingactivityandinflationsurprises.Wefindthatsupplydisruptionssubtractedbetween0.5and1.2percentfromglobalvalueaddedduringtheglobalrecoveryin2021,whilealsoaddingabout1percenttoglobalcoreinflationthatsameyear. JELClassificationNumbers: E3,E23 Keywords: Supplyconstraints;manufacturing;output;inflation Author’sE-MailAddress: jkemp@imf.org;rportilloocando@imf.org;msantoro@imf.org Contents Introduction1 BackgroundandStylizedFacts3 MethodologyandEstimationResults7 SignrestrictedVAR7 Identificationofsupplyanddemandshocks7 Impactof2021supplyshocksonindustrialproduction9 Impactof2021supplyshocksonglobaltrade11 Impactof2021supplyshocksonGDP12 Extendingtheempiricalanalysisto202214 Correlationbetweensupplyanddemandshocks15 StructuralsimulationsusingtheIMFG20Model16 ImpactofsupplyshocksonGDPandcoreinflation17 SensitivityAnalysis:TheslopeofthePhillipscurve19 Conclusion20 References21 AnnexI.AdditionalSVARResults23 AnnexII.ImpulseResponseFunctions(IRFs)30 AnnexIII.AdditionalCharts38 FIGURES Figure1.ManufacturingSuppliers’DeliveryTimes4 Figure2.NewOrders,Suppliers’DeliveryTimes,andRealConsumption5 Figure3.SupplyBottlenecksandInflation6 Figure4.Supply-DemandDecompositionofGlobalNewOrdersandSuppliers’DeliveryTimes8 Figure5.Supply-DemandDecompositionofSuppliers’DeliveryTimes:AEsvsEMs9 Figure6.Impactof2021SupplyShockson2021ManufacturingIP10 Figure7:GlobalTradeVolumes11 Figure8:ImpactofSupplyShockson2021GlobalTradeVolumes12 Figure9.Impactof2021SupplyShocksonGDP14 Figure10.Supply-DemandDecompositionofGlobalNewOrdersandSuppliers’DeliveryTimes14 Figure11.Impactof2022SupplyandDemandShocksonGlobalIP15 Figure12.RelationshipbetweenGlobalSupplyandDemandShocks16 Figure13:StylizedRepresentation17 Figure14.GrowthandInflationDeviationfrompre-CovidBaseline18 Figure15.Impactof2021SupplyShocksGDPGrowthandCoreInflation19 Figure16.GrowthandInflationDeviations:PhillipsCurveComparison20 TABLES Table1:GlobalCostShares12 Introduction Althoughithasbecomeatriteobservation,theCovid-19pandemicperiodhasbeentrulyunique.Whereasrecessionsandrecoveriesusuallyreflectmovementsinaggregatedemand,thesharpswingsinactivitysince2020havecomeinsteadfromacombinationofsupplyanddemandfactors.ThiswasparticularlyevidentduringtherecoveryfromtheGreatLockdownthatstartedinmid-2020.Asgoodsdemandsurged,unprecedentedsupplychainstressessoonemerged,withahighshareoffirmsreportingshortagesofintermediateinputsandlabor(seee.g.,Celasun(2022),Pitschner(2022)).Logisticalbottlenecksalsocontributedtolongerdeliverytimes,withmanykeyportsexperiencingcongestionlevelswellabovepre-pandemiclevels(Komaromietal.,2022).Theiremergenceatatimewhenaggregateactivitywaswellbelowitspre-Covidtrendhasunderscoredtheimpactofthepandemiconglobalproductivecapacity. Thedriversandimplicationsofthesesupply-sidedisruptionshavebeenthesubjectofmuchdebate.Muchoftherecentworkhasbeenontheimpactoninflation,understandablysogiventheunprecedentedinflationarysurgethathastakenplaceoverthisperiod.Inthispaperourfocusisontheimpactonactivityacrossagroupofadvancedeconomies(AEs)andemergingmarkets(EMs)andglobally.Wefocusmainlyon2021:thiswastheyearinwhichthesedisruptionsweremostvisibleandtheireffectonactivitylesslikelytobepollutedbyothersupplyshocks,especiallythosestemmingfromtheinvasionofUkraine. Ourmaincontributionisthatweusetwocomplementaryapproachestodisentangletherelativeimportanceofdemandandsupplyforcesindrivingactivityoverthisperiod,whilealsotakingaglobalperspective.Eachapproachemphasizesdifferentdimensionsoftheglobalmacrodata,onecenteredaroundmanufacturingsurveysandinput-outputlin
