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