Measuring supply disruptions and their economic impact through news analysis
Dario Caldara, Matteo Iacoviello, and David Yu create a monthly U.S. Shortage Index (1900–present) by analyzing about 25 million articles from six major newspapers. The authors use keyword searches to identify articles mentioning shortages in four categories: industry, labor, food, and energy. To ensure relevance, articles must include both shortage-related and topic-specific terms, as well as economic context words. The approach is validated using topic modeling, manual review, and AI audits, and the index is compared with other supply constraint measures for accuracy. Finally, the index’s economic impact is assessed using predictive regressions and a structural VAR model that relates the index to GDP, inflation, and other macroeconomic variables.
Key findings
- The Shortage Index spikes during major economic disruptions (World Wars, 1970s oil crises, COVID-19 pandemic), accurately capturing historical episodes of widespread shortages.
- Shortages are strongly associated with higher future inflation and lower future economic activity. These effects are persistent and robust even after controlling for traditional indicators like commodity prices and wages.
- The index improves out-of-sample forecasts of inflation, especially during periods of acute supply disruptions (e.g., post-2020 pandemic era).
- Structural VAR analysis shows that shortage shocks (unexpected disruptions with both supply constraints and frictions to price adjustment) have a distinct impact: they produce less inflation relative to their impact on GDP compared to traditional supply shocks, suggesting that price adjustment constraints (e.g., price controls, hoarding) limit inflation but exacerbate declines in real activity.
- Historical decomposition reveals that post-pandemic shortages and inflation were primarily driven by supply-side forces (traditional supply shocks, commodity shocks, and shortage-specific shocks), with demand playing a secondary role.
- The index offers a unique long-term perspective on shortages, outperforming other indicators in both historical coverage and predictive power for inflation and economic activity.
Measuring Shortages Since 1900
Authors: Dario Caldara, Matteo Iacoviello, David Yu
From: Federal Reserve Board, UCLA
When shortages hit, large firms win and prices rise
This paper by Francesco Franzoni, Mariassunta Giannetti, and Roberto Tubaldi investigates how supply chain shortages impact firm performance and industrial structure. The authors explore whether large firms can navigate supply chain disruptions more effectively than smaller competitors and how these dynamics affect market concentration, pricing power, and ultimately inflation. They use firm-level financial data from Worldscope (covering nearly 19,000 firms in 83 countries), supplier-customer relationship data (Factset Revere), shipping records (U.S. Bills of Lading), and industry-level price and supply chain metrics (PMI, Bloomberg) for the period from 2010 to 2021. Finally, Franzoni et al. identify large “superstar” firms within industries and compare their supply chain outcomes to smaller firms during periods of disruption.
Key findings
- Differential Exposure to Supply Chain Shortages
The authors find that large “superstar” firms have more diversified supplier networks and greater bargaining power. Using Bills of Lading data, they show that during supply chain disruptions, superstar firms receive larger deliveries from the same suppliers compared to smaller customers. Specifically, when delivery times lengthen, superstar firms receive more containers, shipments, and higher volumes than their smaller competitors.
- Firm-Level Competitive Advantages
When industries experience supply chain shortages, superstar firms gain market share relative to competitors within the same industry. Large firms experience smaller cost increases than other firms (approximately 10% less than average) but exhibit higher markups, with about 48% of the markup increase attributable to lower costs and 52% to increased pricing power.
- Industry Structure and Inflation Impacts
Industries experience increased concentration (HHI) when supply chain shortages occur, especially in already concentrated sectors. Aggregate sales decrease more in concentrated industries during disruptions, consistent with reduced competition rather than demand shifts. This mechanism explains up to 23% of U.S. inflation during 2021 at the height of supply chain disruptions.
Supply Chain Shortages, Large Firms’ Market Power, and Inflation
Authors: Francesco Franzoni, Mariassunta Giannetti, Roberto Tubaldi
From: U.S.I Lugano, Stockholm School of Economics, Norwegian Business School
