Demand or Supply? Price Adjustment During the Covid-19 Pandemic

35 Pages Posted: 10 Aug 2020

See all articles by Almut Balleer

Almut Balleer

University of Bonn

Sebastian Link

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; Ludwig Maximilian University of Munich (LMU)

Manuel Menkhoff

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; Ludwig Maximilian University of Munich (LMU)

Peter Zorn

Ludwig Maximilian University of Munich (LMU)

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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.

Keywords: producer price setting, supply, demand, COVID-19, fiscal policy

JEL Classification: E31, E32, H50, E60, D22

Suggested Citation

Balleer, Almut and Link, Sebastian and Menkhoff, Manuel and Zorn, Peter, Demand or Supply? Price Adjustment During the Covid-19 Pandemic. IZA Discussion Paper No. 13568, Available at SSRN: https://ssrn.com/abstract=3669497

Almut Balleer (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Sebastian Link

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

HOME PAGE: http://www.cesifo-group.de/portal/page/portal/ifoHome/f-about/f3aboutifo/50ifostaff/_ifocv_link_s

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Manuel Menkhoff

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Poschinger Str. 5
Munich, 01069
Germany

Ludwig Maximilian University of Munich (LMU)

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Peter Zorn

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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