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Demand-Supply Imbalance during the COVID-19 Pandemic: The Role of Fiscal Policy

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Abstract

To mitigate the health and economic fallout from the COVID-19 pandemic, governments worldwide engaged in massive fiscal support programs. We show that generous fiscal support is associated with an increase in the demand for consumption goods during the pandemic, but industrial production did not adjust quickly enough to meet the sharp increase in demand. This imbalance between supply and demand across countries contributed to high inflation. Our findings suggest a sizable role for fiscal policy in affecting price stability, above and beyond what a monetary authority can do.

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  • Francois de Soyres & Ana Maria Santacreu & Henry L. Young, 2023. "Demand-Supply Imbalance during the COVID-19 Pandemic: The Role of Fiscal Policy," Review, Federal Reserve Bank of St. Louis, vol. 105(1), pages 21-50, January.
  • Handle: RePEc:fip:fedlrv:95433
    DOI: 10.20955/r.105.21-50
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    Cited by:

    1. Cavallo, Alberto & Kryvtsov, Oleksiy, 2023. "What can stockouts tell us about inflation? Evidence from online micro data," Journal of International Economics, Elsevier, vol. 146(C).
    2. Francesco Ferrante & Sebastian Graves & Matteo Iacoviello, 2023. "The Inflationary Effects of Sectoral Reallocation," International Finance Discussion Papers 1369, Board of Governors of the Federal Reserve System (U.S.).
    3. Diego A. Comin & Robert C. Johnson & Callum J. Jones, 2023. "Supply Chain Constraints and Inflation," NBER Working Papers 31179, National Bureau of Economic Research, Inc.
    4. Mary Amiti & Sebastian Heise & Fatih Karahan & Ayşegül Şahin, 2024. "Inflation Strikes Back: The Role of Import Competition and the Labor Market," NBER Macroeconomics Annual, University of Chicago Press, vol. 38(1), pages 71-131.
    5. Ferrante, Francesco & Graves, Sebastian & Iacoviello, Matteo, 2023. "The inflationary effects of sectoral reallocation," Journal of Monetary Economics, Elsevier, vol. 140(S), pages 64-81.

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    More about this item

    Keywords

    COVID-19; fiscal policy; demand-supply imbalance;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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