Inflationary Effects of Fiscal Support to Households and Firms
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 the 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.
We thank Ayaz Valetdinov, Viktoria Berestova, Ted Liu and Fabián Rivera-Reyes for excellent research assistance. We benefited from the comments of the participants of the Oslo Macro Conference in August 2022 as well as seminar participants at the University of Michigan. The views expressed in this paper are¸˛those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of San Francisco, the Federal Reserve System, Morning Consult, or the National Bureau of Economic Research.