Adverse Supply Shock

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Adverse Supply Shock

Any sudden event that dramatically but (usually) temporarily decreases supply for one or more goods or services. An adverse supply shock is often (but not always) a natural event. For example, a series of severe tornados on farms in western Oklahoma can cause adverse supply shock for wheat. This reduces the amount of wheat in the market, which raises the price, assuming demand remains constant. It is a type of supply shock.
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The reduction in oil export duties has led to the depreciation of the ruble and worsening of the terms of trade of the Russian economy, which has resulted in cost-push inflation and adverse supply shocks in the country.
Although adverse supply shocks are beyond the control of policymakers, they can adopt monetary policies to influence aggregate demand in the short run, thus affecting output, unemployment and inflation.
In fact, it took three large adverse supply shocks for expectations to adjust.
He, however, said adverse supply shocks, continued declining trend in commodity prices, and any setback to security situation might hamper the possibility of attaining the GDP growth target of 5.7 per cent in FY-17.
Adverse supply shocks, continued declining trend in commodity prices, and any setback to security situation may hamper the possibility of attaining the GDP growth target of 5.7 percent in FY17.
Microfinance is also useful in unexpected crises such as business risks and adverse supply shocks. Microfinance provides cushion against these shocks.
One of the resolutions in the mid-seventies was that there is no solution for policy-makers to avoid adverse supply shocks. You have to take the hit in some combination of higher inflation and lower output.
Because you could see already, in 2006, that Bernanke was going to face the change from the beneficial supply shocks to the adverse supply shocks that inherently make the job of the central banker impossible, to carry out both the Fed's stated objectives.
Indeed, when the ARDL model is adjusted for these changes (e.g., adverse supply shocks in the 1970s), the significant short-term PC disappears quickly.
It could also improve the Fed's latitude to conduct stabilization policy--enabling it to respond to the negative real impacts of adverse supply shocks. The articulation of a numerical inflation objective might reduce the possibility of an "inflation scare" following such shocks.
This combination, rather than only adverse supply shocks such as a drop in productivity, explains much of the performance of the U.S.
Or, put differently, an accelerating inflation rate is a leading indicator of an adverse supply shock.