Monetary policy transmission under supply-chain disruptions: Evidence from a time-varying BVAR

This paper examines the time-varying effects of monetary policy and global supply-chain disruptions on U.S. inflation and GDP during the COVID-19 pandemic. To this end, we estimate a time-varying parameter Bayesian Vector Autoregressive (TVP-BVAR) model. We find that expansionary monetary policy shocks’ impact differs significantly between pre- and post-pandemic periods. Specifically, inflationary effects of supply-chain disruptions increased substantially after the pandemic, while output effects remained stable. Furthermore, monetary policy pass-through to inflation strengthens as supply-chain pressures intensify. Finally, statistical evidence shows that supply-chain disruptions steepen the Phillips curve, with the effect most pronounced for durable goods inflation.