Our analysis suggests that fiscal transfer shocks account for a sizable share of the early post-pandemic increase in the price level through mid-2021. Thereafter, the rise in the price level is dominated by adverse supply shocks (especially supply-chain disruptions), while demand shocks mainly matter later for the lift-off in short-term interest rates. In addition, we find that fiscal transfers were essential for preventing a decline in real output per capita similar to the one experienced during the Great Depression.

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