DP14907 Demand or Supply? Price Adjustment during the Covid-19 Pandemic

Author(s): Almut Balleer, Sebastian Link, Manuel Menkhoff, Peter Zorn
Publication Date: June 2020
Keyword(s): COVID-19, demand, Firm behavior, Producer price setting, Supply
JEL(s): D22, E31, E32, E37, E60
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14907

We study planned price changes 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 deficiencies dominate in the short run. Quarteron- quarter producer price inflation is predicted to decline by as much as 1.5 percentage points through August 2020. These results imply a role for Keynesian stimulus policy to buffer the Covid-19 economic crisis.