Working Paper: CEPR ID: DP17856
Authors: Galina Hale; John Leer; Fernanda Nechio
Abstract: Fiscal support measures in response to the COVID-19 pandemic varied in their targeted beneficiaries. Relying on variability across 10 large economies, we study differences in the inflationary effects of fiscal support measures targeting consumers or businesses. Because conventional measures of real activity were distorted, we control for the underlying state of the real economy using households sentiment data. We find that fiscal support measures to consumers, but not firms, had inflationary effects that manifested 5 weeks following the announcement and peaked at 12 weeks. The magnitude of the effect was larger in an environment of improving consumer sentiment.
Keywords: COVID-19; Pandemic; Inflation
JEL Codes: E31; E62; E65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal support measures directed at consumers (H31) | Inflationary effects (E31) |
| Fiscal support measures directed at consumers + Improving consumer sentiment (D12) | Amplified inflationary effects (E31) |
| Severity of COVID-19 crisis (H12) | Estimated inflationary effects of fiscal support (E62) |
| Lockdown measures (F38) | Estimated inflationary effects of fiscal support (E62) |
| Changes in monetary policy (E52) | Estimated inflationary effects of fiscal support (E62) |
| Consumer sentiment (D12) | Estimated inflationary effects of fiscal support (E62) |