Supply Disruptions and Fiscal Stimulus: Transmission through Global Value Chains

We study the impact of demand and supply factors on bottlenecks and inflation during the COVID-19 pandemic. Initial policy interventions, from lockdowns to fiscal stimuli, triggered shifts in consumer spending and supply chain disruptions. The reopening of economies normalized consumption patterns, but attributing bottlenecks to specific factors remains challenging due to diverse policy responses. This paper empirically integrates fiscal spending, mobility measures, and supply constraints to analyze interconnected factors influencing bottlenecks and inflation internationally. We find an important role played by fiscal shocks and the international propagation of demand and supply forces in shaping bottlenecks and inflation dynamics.