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Demand or Supply? Price Adjustment Heterogeneity during the COVID-19 Pandemic

Author

Listed:
  • Almut Balleer

    (RWI Essen, TU Dortmund, IIES Stockholm, CESifo, and CEPR)

  • Sebastian Link

    (ifo Institute, LMU Munich, IZA, and CESifo)

  • Manuel Menkhoff

    (ifo Institute and LMU Munich)

  • Peter Zorn

    (LMU Munich and CESifo)

Abstract

We study price-setting behavior and subjective perceptions in German firm-level survey data to infer the relative importance of supply and demand during the COVID-19 pandemic. Demand shortages dominate at the onset of the pandemic. A reported negative impact of COVID-19 on current business is associated with a rise in the probability to decrease prices up to 10 percentage points in this episode. Supply forces gain in importance during the ensuing sudden surge in inflation and firms perceive goods supply shortages as most restrictive. Firms adversely affected during the early inflation decline show no higher probability of price increases. Journal: International Journal of Central Banking

Suggested Citation

  • Almut Balleer & Sebastian Link & Manuel Menkhoff & Peter Zorn, 2024. "Demand or Supply? Price Adjustment Heterogeneity during the COVID-19 Pandemic," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 93-157, February.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:1:a:3
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    References listed on IDEAS

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    1. Luís Cabral & Lei Xu, 2021. "Seller reputation and price gouging: Evidence from the COVID‐19 pandemic," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 867-879, July.
    2. 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.
    3. Buchheim Lukas & Krolage Carla & Link Sebastian, 2022. "Sudden stop: When did firms anticipate the potential consequences of COVID-19?," German Economic Review, De Gruyter, vol. 23(1), pages 79-119, February.
    4. Sauer,Stefan & Klaus Wohlrabe & Stefan Sauer, 2019. "CEO or Intern − Who Actually Answers the Questionnaires in the ifo Business Survey?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 20(02), pages 29-31, July.
    5. Martin Eichenbaum & Miguel Godinho de Matos & Francisco Lima & Sergio Rebelo & Mathias Trabandt, 2024. "Expectations, Infections, and Economic Activity," Journal of Political Economy, University of Chicago Press, vol. 132(8), pages 2571-2611.
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    Cited by:

    1. Link, Sebastian, 2024. "The price and employment response of firms to the introduction of minimum wages," Journal of Public Economics, Elsevier, vol. 239(C).
    2. Jochen Güntner & Magnus Reif & Maik Wolters, 2024. "Sudden stop: Supply and demand shocks in the German natural gas market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(7), pages 1282-1300, November.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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