Supply shock


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Supply shock

An event that influences production capacity and costs in an economy.

Supply Shock

Any sudden event that dramatically but (usually) temporarily increases or decreases supply for one or more goods or services. The event may result from government intervention, such as a change in money supply, or may be a random occurrence in the market. For example, a sudden discovery of oil in a field previously thought mainly dry will increase the supply of oil, which will lower the price, assuming demand remains constant. See also: Demand shock.
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A supply shock, which may result in the deviation of inflation from the target, calls for policy response that in turn affects the aggregate demand.
In principle, a supply shock affects output and prices in the following way.
We are now expecting production and gross domestic product will decline in the first quarter and the second quarter,'' Shirakawa said in the interview with reference to the economic impact of the March 11 earthquake and tsunami, which caused what he described as ''a supply shock.
But it added that as a result OPEC's spare capacity has fallen to its lowest level since late 2008, thus reducing its ability to cushion any new supply shock.
A rise in total inflation caused by a supply shock might raise expected inflation, which in turn raises future inflation; in that case, total inflation would be a better forecaster than core inflation.
They also use a reserve supply shock measure that more adequately reflects reserve supply shocks that the Desk creates each day in the conduct of open market operations.
Economic theory posits that the condition can be brought on by one of two things - supply shock or inappropriate monetary policies.
Economic theory suggests the condition can be brought on by either supply shock or faulty monetary policies.
The Fed will have to raise rates pretty steadily and significantly to offset the inflationary spillovers of the negative supply shock.
energy needs and it is not currently feasible to substitute contribution of alternative energy sources in the near-term, "a GHG cap could effectively become an energy production cap -- or an energy supply shock.
Collins also said, "In the past when we have seen grain prices spike, they have always fallen back because the spike was normally the result of a supply shock, such as a bad harvest, but this time it is a demand shock, which will keep prices higher.