Working Paper: CEPR ID: DP14907
Authors: Almut Balleer; Peter Zorn; Sebastian Link; Manuel Menkhoff
Abstract: We study price-setting behavior in German firm-level survey data to infer the relativeimportance of supply and demand during the Covid-19 pandemic. Supply anddemand forces coexist, but demand shortages dominate in the short run. A reportednegative impact of Covid-19 on current business is associated with a rise in the probabilityto decrease prices up to eleven percentage points. These results imply a role foraggregate 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 Codes: E31; E32; H50; E60; D22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strongly negative impact of COVID-19 on businesses (F69) | increase in the probability of planned price decreases (L11) |
| demand shortages (J23) | increase in the probability of planned price decreases (L11) |
| positive impacts of COVID-19 on businesses (F69) | decrease in the probability of planned price decreases (L11) |
| frequency of planned price decreases in manufacturing (L11) | increase by 28 percentage points (I24) |
| frequency of planned price decreases in retail/wholesale (L81) | increase by 54 percentage points (I24) |
| frequency of planned price decreases in services (D49) | increase by 53 percentage points (I24) |