Working Paper

Demand-Supply imbalance during the Covid-19 pandemic: The role of fiscal policy

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 contributed to 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 led to high inflation. Our findings suggest a sizable role for fiscal policy in affecting price stability.

Keywords: Covid; Fiscal policy; Inflation; Supply chains;

JEL Classification: E20; E60; F40;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2022-08-04

Number: 1353