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Supply or Demand? Findings from the Price-Setting Behavior of German Companies during the Coronavirus Crisis

Author

Listed:
  • Almut Balleer
  • Sebastian Link
  • Manuel Menkhoff
  • Peter Zorn

Abstract

The extent and design of effective measures depend on the relative strength of the shifts in supply and demand in the coronavirus crisis. Using the price-setting behavior of German companies, the authors examine the relative importance of supply and demand during the Covid-19 pandemic. The findings show that demand effects play a dominant role in the early phase of the coronavirus crisis. As a consequence of the significant decline in overall demand, producer price inflation is projected to decline by up to an additional 1.5 percentage points until August 2020 due to the coronavirus crisis. Fiscal policy measures to strengthen aggregate demand can therefore contribute significantly to economic stabilization.

Suggested Citation

  • Almut Balleer & Sebastian Link & Manuel Menkhoff & Peter Zorn, 2020. "Supply or Demand? Findings from the Price-Setting Behavior of German Companies during the Coronavirus Crisis," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(07), pages 13-16, July.
  • Handle: RePEc:ces:ifosdt:v:73:y:2020:i:07:p:13-16
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    References listed on IDEAS

    as
    1. Martin S Eichenbaum & Sergio Rebelo & Mathias Trabandt, 2021. "The Macroeconomics of Epidemics [Economic activity and the spread of viral diseases: Evidence from high frequency data]," Review of Financial Studies, Society for Financial Studies, vol. 34(11), pages 5149-5187.
    2. Balleer, Almut & Link, Sebastian & Menkhoff, Manuel & Zorn, Peter, 2020. "Demand or Supply? Price Adjustment during the COVID-19 Pandemic," IZA Discussion Papers 13568, Institute of Labor Economics (IZA).
    3. David Baqaee & Emmanuel Farhi, 2022. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis," American Economic Review, American Economic Association, vol. 112(5), pages 1397-1436, May.
    4. Stefan Sauer & Klaus Wohlrabe, 2020. "ifo Handbuch der Konjunkturumfragen," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 88.
    5. Veronica Guerrieri & Guido Lorenzoni & Ludwig Straub & Iván Werning, 2022. "Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?," American Economic Review, American Economic Association, vol. 112(5), pages 1437-1474, May.
    6. Alberto Cavallo, 2020. "Inflation with Covid Consumption Baskets," NBER Working Papers 27352, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Finanzpolitik; Unternehmen; Preismanagement; Epidemie; Deutschland;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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