Articles

Financial Frictions and Supply Shocks: Inflation Persistence Mechanisms (2020–2025)

Financial Frictions and Supply Shocks: Inflation Persistence Mechanisms (2020–2025)

Burhan Reshat Rexhepi

Abstract

Persistent inflation episodes during 2020–2025 are difficult to explain using frameworks that treat inflation persistence as primarily a nominal phenomenon driven by expectations and price rigidities. This review argues that persistence in recent years is better understood as the interaction of (i) (i) adverse supply shocks transmitted through production networks (energy-price surges, shipping bottlenecks, shortages of intermediates) and (ii) financial frictions that amplify cost pressures (credit spreads, borrowing constraints, intermediary balance-sheet limits). Using a narrative synthesis of peer-reviewed and policy research from 2020–2025, the paper organises findings by transmission channels and measurable indicators. Evidence from the euro area and the United States indicates that supply-chain pressure shocks can generate hump-shaped and persistent inflation responses, while financial conditions influence the magnitude and duration of cost pass-through via working-capital costs, delayed capacity adjustment, and risk premia embedded in borrowing rates. The review proposes an operational measurement approach for researchers and policy analysts that links supply diagnostics (e.g., supply-chain pressure indices, energy pass-through measures) with macro-financial monitoring (credit spreads, bank lending standards, financial conditions indices). The main implication is that inflation persistence should be modelled and monitored as a joint outcome of shock composition and financial amplification, rather than a purely expectations-driven process.

How to Cite

Rexhepi, B. R. (2026). Financial Frictions and Supply Shocks: Inflation Persistence Mechanisms (2020–2025): Financial Frictions and Supply Shocks: Inflation Persistence Mechanisms (2020–2025). Transnational Academic Journal of Economics, 2(2). Retrieved from https://tacje.net/index.php/pub/article/view/56
Endnote/Zotero/Mendeley (RIS) BibTeX

References

  1. Ascari, G., Bonam, D., & Smadu, A. (2024). Global supply chain pressures, inflation, and implications for monetary policy (Working paper). European Central Bank. Taylor & Francis Online
  2. Bank for International Settlements. (2024). Annual Economic Report 2024: Laying a robust macro-financial foundation for the future (Chapter I). BIS. Bank for International Settlements
  3. Bank for International Settlements. (2025). BIS Annual Economic Report 2025. BIS. Bank for International Settlements
  4. Benigno, G., di Giovanni, J., Groen, J. J. J., & Noble, A. (2022). The GSCPI: A new barometer of global supply chain pressures. Federal Reserve Bank of New York Staff Reports (No. 1017). IMF
  5. Casoli, C., Manera, M., & Valenti, D. (2024). Energy shocks in the euro area: Disentangling the pass-through from oil and gas prices to inflation. Journal of International Money and Finance, 147, 103154. doi:10.1016/j.jimonfin.2024.103154 Bologna University Archive+1
  6. Cesa-Bianchi, A., & Sokol, A. (2022). Financial shocks, credit spreads, and the international credit channel. Journal of International Economics, 135, 103543. Google Sites+1
  7. Cleveland Fed. (2023). The impacts of supply chain disruptions on inflation (Economic Commentary). Federal Reserve Bank of Cleveland. FRASER
  8. Comin, D., Johnson, R. C., & Jones, C. (2023). Supply chain constraints and inflation (NBER Working Paper No. 31179; revised 2024). National Bureau of Economic Research. Richmond Fed
  9. De Santis, R. A. (2024). Supply chain disruption and energy supply shocks: Impact on euro area output and prices. International Journal of Central Banking, 20(2). International Journal of Central Banking+1
  10. Engler, P., Piazza, R., & Sher, G. (2024). Monetary policy and inflation scares (IMF Working Paper WP/24/260). International Monetary Fund. European Central Bank
  11. Federal Reserve Bank of New York. (2025). Global Supply Chain Pressure Index (GSCPI). FRBNY. IMF
  12. Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2022). Macroeconomic implications of COVID-19: Can negative supply shocks cause demand shortages? American Economic Review, 112(5). NBER
  13. IMF. (2024). Monetary policy with uncertain inflation persistence (IMF Working Paper WP/24/047). International Monetary Fund. European Central Bank
  14. Kwon, D. (2020). Risk shocks and credit spreads. Journal of Macroeconomics, 64, 103208. doi:10.1016/j.jmacro.2020.103208 ORCID+1
  15. Richmond Fed. (2024). Bank lending standards and the U.S. economy (Working Paper 24-07). Federal Reserve Bank of Richmond. ScienceDirect
  16. San Francisco Fed. (2023). Global supply chain pressures and U.S. inflation (Economic Letter). Federal Reserve Bank of San Francisco. European Central Bank
  17. Tillmann, P. (2024). The asymmetric effect of supply chain pressure on inflation. Economics Letters, 235, 111540. doi:10.1016/j.econlet.2024.111540 ScienceDirect+1
  18. Cassinis, R., Galesi, A., & et al. (2025). Supply shocks and inflation: Timely insights from financial markets (ECB Working Paper Series No. 3096). European Central Bank. Federal Reserve Bank of San Francisco
  19. Global drivers of inflation: The role of supply chain disruptions and commodity price shocks. (2024). Journal of Economic Dynamics and Control (Article). ScienceDirect
  20. ——— (2024). Credit risk and the transmission of interest rate shocks. Journal of Monetary Economics (Article). ScienceDirect
  21. Daci, E., & Rexhepi, B. R. (2024). The role of management in microfinance institutions in Kosovo: Case study Dukagjini region. Quality – Access to Success, 25(202). doi:10.47750/QAS/25.202.22 admin.calitatea.ro+1
  22. Murtezaj, I. M., Rexhepi, B. R., Dauti, B., & Xhafa, H. (2024). Mitigating economic losses and prospects for the development of the energy sector in the Republic of Kosovo. Economics of Development, 23(3), 82–92. doi:10.57111/econ/3.2024.82 ResearchGate+1
  23. Murtezaj, I. M., Rexhepi, B. R., Xhaferi, B. S., Xhafa, H., & Xhaferi, S. (2024). The study and application of moral principles and values in the fields of accounting and auditing. Pakistan Journal of Life and Social Sciences, 22(2), 3885–3902. doi:10.57239/PJLSS-2024-22.2.00286 pjlss.edu.pk+1
  24. Rexhepi, B. R., Rexhepii, F. G., Xhaferi, B., Xhaferi, S., & Berisha, B. I. (2024). Financial accounting management: A case of Ege furniture in Kosovo. Quality – Access to Success, 25(200), 77–84. doi:10.47750/QAS/25.200.09 admin.calitatea.ro+1
  25. Rexhepi, B. R., Mustafa, L., Sadiku, M. K., Berisha, B. I., Ahmeti, S. U., & Rexhepi, O. R. (2024). The impact of the COVID-19 pandemic on the dynamics of development of construction companies and the primary housing market: Assessment of the damage caused, current state, forecasts. Architecture Image Studies, 5(2), 70–79. doi:10.48619/ais.v5i2.988 Academia+1