The Aggregate Effects of Global and Local Supply Chain Disruptions: 2020–2022

We study the aggregate effects of supply chain disruptions in the post-Pandemic period in a two-country heterogeneous-firm general equilibrium model with a rich set of supply chain frictions: shipping delays, fixed order costs, storage costs, uncertain delivery, and uncertain demand. These frictions lead firms to hold inventories that depend on the source of supply and these inventories influence price setting and are an input into production. We model aggregate shocks that capture the dynamics of the global economy in the crisis and recovery. We show that increases in shipping times are contractionary, raise prices and increase stockouts, particularly for goods intensive in delayed inputs. These effects are larger when inventories are already at low levels, as in the U.S. and the world since early in the Pandemic. We fit the model to the key features of the aggregate economy from 2020-2022 and estimate the aggregate effects of international and domestic supply disruptions. Our model predicts that the boost in output from the unwinding of restocking delays will be smaller than the contraction in output from the waning effects of stimulus in 2021.