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Fiscal Policy Design and Inflation: The COVID-19 Pandemic Experience

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  • 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 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.

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  • Galina Hale & John Leer & Fernanda Nechio, 2024. "Fiscal Policy Design and Inflation: The COVID-19 Pandemic Experience," Working Paper Series 2023-02, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfwp:95486
    DOI: 10.24148/wp2023-02
    Note: Original title: Inflationary Effects of Fiscal Support to Households and Firms. Original publication date: 2022/12/20.
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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