Demand-Supply imbalance during the Covid-19 pandemic: The role of fiscal policy
International Finance Discussion Paper(2022)
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.
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Key words
pandemic,demand-supply
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