Based on these notions, the Russian policymakers should consider improving their level of transparency and provide proper communication to the public regarding their monetary policy strategies in order to achieve a favourable outcome with minimal cost in tackling the cost-push shock and adverse supply shock
issues in the Russian economy.
Overall, the macroeconomic implications in the US resemble the impact of a cost shock or adverse supply shock
as prices increase while output declines.
First, it can result when the productive capacity of the economy is reduced by an adverse supply shock
, such as an increase in the price of oil.
First, transformational recession was caused by the adverse supply shock
that resulted from deregulation of prices and change in relative price ratios that created the need for reallocation of resources due to distortions in the industrial structure and external trade patterns that existed before transition.
Or, put differently, an accelerating inflation rate is a leading indicator of an adverse supply shock
For example, an adverse supply shock
or money demand shock could have intervened in the first or second quarter of 1995 (other shocks).
An adverse supply shock
could cause difficulties even if the broadest possible bundle of goods and services was used to define the dollar.
In my paper, however, a low-inflation regime can be upset by an adverse supply shock
. When the shock occurs, maintaining low inflation requires anti-accommodative monetary policy, and hence higher unemployment.
Consider the effect on the ex ante real interest rate from a temporary, adverse supply shock
, such as a harvest failure in an agricultural, closed economy.
In the event of an adverse supply shock
, which raises prices and reduces output, inflation targeting may force the central bank to check money supply at a time when the economy is in recession.
An inflation target requires the central bank to tighten in response to an adverse supply shock
and to ease monetary policy in response to a favorable supply shock, compounding the change in real output resulting from the supply shock.
When an adverse supply shock
hits a two-country Mundell-Fleming world, it causes unemployment and a rise in the cost of living.