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 |
Date Revised: | August 2020 |
Keyword(s): | COVID-19, demand, Fiscal policy, Producer price setting, Supply |
JEL(s): | D22, E31, E32, E60, H50 |
Programme Areas: | Monetary Economics and Fluctuations |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=14907 |
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.