Almut Balleer, Sebastian Link, Manuel Menkhoff, Peter Zorn, 27 July 2020

The relative importance of supply and demand during the Covid-19 pandemic is a key input into effective policy design. This column uses firm-level data on planned price changes by firms from a monthly survey covering all relevant sectors of the German economy to show that both demand and supply forces coexist, but that demand deficiencies dominate in the short run.

David Baqaee, Emmanuel Farhi, 29 June 2020

Covid-19 is an unusual combination of supply and demand shocks. These shocks propagate through supply chains, causing different sectors to become demand-constrained or supply-constrained. This column uses a disaggregated Keynesian model to identify the shocks, classify the sectors, and draw implications for policy. Negative sectoral supply shocks and shocks to the sectoral composition of demand generate more than 7% inflation, and this inflation is kept in check by a large negative aggregate demand shock. There is considerable slack in economy, with 6% Keynesian unemployment, but it is concentrated in certain sectors. As a result, untargeted aggregate demand stimulus, while desirable, is less effective than in a typical recession. 

Pedro Brinca, Joao B. Duarte, Miguel Faria e Castro, 17 June 2020

Recent academic discussions have sought to understand whether the economic impact of the COVID-19 crisis and associated lockdown should be ascribed to demand or supply shocks. This debate is of some importance since the underlying shock can have significant implications for stabilisation policy. This column tries to answer these questions by using data on hours worked and wages to estimate labour demand and supply shocks for the aggregate economy and for different sectors through an econometric model. It finds that while labour supply shocks accounted for a larger share of the fall in hours, both shocks were important.

Alexis Antoniades, Sofronis Clerides, 16 December 2018

Understanding how firms respond to demand shocks has important insights on firm and consumer behaviour. To date, firm responses have been mostly been examined in isolation. This column uses scanner data to explore how Danish firms and their competitors responded to a boycott in ten Arab states in 2006. Results show that Danish firms responded on the intensive margin by lowering prices, while their competitors responded on the extensive margin by introducing new products.

Richard Baldwin, 27 November 2009

World trade experienced a sudden, severe and synchronised collapse in late 2008 – the sharpest in recorded history and deepest since WWII. VoxEU today posts a new Ebook – written for the world's trade ministers gathering for the WTO's Trade Ministerial in Geneva – that presents the economics profession's received wisdom on the collapse. Two dozen chapters, written by leading economists from across the planet, summarise the latest research on the causes of the collapse as well as the consequences and prospects for recovery.


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