2026-04-14T07:20:37Zhttps://recercat.cat/oai/request

oai:recercat.cat:10230/574782025-12-22T13:40:45Zcom_2072_6col_2072_452952

urn:hdl:10230/57478 The scars of supply shocks: implications for monetary policy Fornaro, Luca Wolf, Martin Energy shocks Hysteresis Investment Endogenous growth Inflation Covid-19 We study the effects of supply disruptions - for instance due to energy price shocks or the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By temporarily disrupting investment, negative supply shocks generate permanent output losses - or scarring effects. By inducing a negative wealth effect, scarring effects depress aggregate demand, which may even fall below the exogenous fall in supply. However, that scarring effects depress aggregate demand does not necessarily translate into low rates of inflation. On the contrary, scarring effects may reinforce and prolong the inflationary impact of supply disruptions. A contractionary monetary policy response may end up deepening scarring effects and increasing inflation in the medium run. A successful disinflation may require a policy mix of monetary tightening and fiscal interventions aiming at supporting business investment and the economy’s productive capacity. Luca Fornaro acknowledges financial support from the European Research Council under the European Union’s Horizon 2020 research and innovation program, Starting Grant (851896-KEYNESGROWTH) and the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S), and from the Generalitat de Catalunya, through CERCA and SGR Programme (2017-SGR-1393). 2023-07-06T06:54:50Z 2023-07-06T06:54:50Z 2023 info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion Journal of Monetary Economics. 2023;140:sS18-S36. info:eu-repo/grantAgreement/EC/H2020/851896 info:eu-repo/grantAgreement/ES/2PE/CEX2019-000915-S © 2023 The Authors. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/) http://creativecommons.org/licenses/by/4.0/ info:eu-repo/semantics/openAccess Elsevier