Discussion Paper Details

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Title: Demand or Supply? Price Adjustment during the Covid-19 Pandemic

Author(s): Almut Balleer, Sebastian Link, Manuel Menkhoff and Peter Zorn

Publication Date: June 2020

Keyword(s): COVID-19, demand, Fiscal policy, Producer price setting and Supply

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We study price-setting behavior in German firm-level survey data to infer the relative importance of supply and demand during the Covid-19 pandemic. Supply and demand forces coexist, but demand shortages dominate in the short run. A reported negative impact of Covid-19 on current business is associated with a rise in the probability to decrease prices up to eleven percentage points. These results imply a role for aggregate demand stabilization policy to buffer the economic consequences of Covid- 19 while containing the pandemic.

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Bibliographic Reference

Balleer, A, Link, S, Menkhoff, M and Zorn, P. 2020. 'Demand or Supply? Price Adjustment during the Covid-19 Pandemic'. London, Centre for Economic Policy Research.