Supply Shortages, Inflation, and Financial conditions in the United States: Evidence from a Recursive VAR

This thesis investigates the macro-financial effects of shortage shocks in the United States using a recursively identified vector autoregressive model. The analysis is based on monthly data and includes a shortage measure, consumer prices, the unemployment rate, the three-month Treasury bill rate, the ten-year Treasury yield, and the BAA–AAA corporate bond spread. To examine whether the estimated transmission mechanism is sensitive to recent observations, the results are compared between a pre-COVID sample and a full sample including the COVID and post-COVID period. The findings show that shortage innovations are followed by a positive and persistent response of consumer prices. Financial variables also respond to shortage innovations, although the magnitude, timing, and precision of these responses differ across samples. Forecast error variance decompositions indicate that shortage shocks explain a non-negligible share of fluctuations in prices and financial conditions, especially at medium and longer horizons. By contrast, the unemployment response is weaker, more delayed, and less stable across samples, suggesting that the real-activity effects of shortage shocks are more difficult to identify consistently. Overall, the results are consistent with the interpretation of shortage shocks as inflationary supply-side disturbances with possible financial spillovers. The comparison across samples suggests that the estimated transmission patterns are sensitive to the inclusion of COVID and post-COVID observations. However, this comparison is descriptive and should not be interpreted as formal evidence of a structural break.