The long-run effects of pandemics on inflation: Will this time be different?

We find that past major pandemics have led to a significant decline in trend inflation in Europe that lasts for more than a decade. The effects of the COVID-19 pandemic on trend inflation could, however, be different this time around. •How did past major pandemics affect inflation dynamics?•Followin...

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Bibliographic Details
Published in:Economics letters 2021-11, Vol.208, p.110065-110065, Article 110065
Main Authors: Bonam, Dennis, Smădu, Andra
Format: Article
Language:English
Subjects:
COVID-19
Economic conditions
Inflation
Local projections
Monetary policy
Pandemics
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Summary:We find that past major pandemics have led to a significant decline in trend inflation in Europe that lasts for more than a decade. The effects of the COVID-19 pandemic on trend inflation could, however, be different this time around. •How did past major pandemics affect inflation dynamics?•Following a pandemic, trend inflation falls steadily below its initial level for more than a decade.•Historically, pandemics have had a significant and long-lasting effect on economic activity.•The more prolonged and severe are pandemics, the more persistent is the negative impact on inflation.•The effects of the COVID-19 pandemic on inflation could play out differently this time around.
ISSN:0165-1765
1873-7374
0165-1765
DOI:10.1016/j.econlet.2021.110065