Demand or Supply? Price Adjustment During the Covid-19 Pandemic
35 Pages Posted: 10 Aug 2020
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
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