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

RePEc Short ID: psa547
ORCID iD: 0000-0002-3788-4511

Santacreu, Ana Maria; Young, Henry L.; de Soyres, Francois

doi:10.20955/r.105.21-50

Journal Article

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 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.

Keywords: COVID-19; fiscal policy; demand-supply imbalance;

JEL Classification: E2; E6; F4;

https://doi.org/10.20955/r.105.21-50