Assessment of the impacts of the pandemic on the world's major economies: A crisis of supply or demand?

The coronavirus pandemic and the related anti-epidemic measures represent an unprecedented negative shock to the global economy in the form of a dramatic fall in economic activity. However, since the onset of the pandemic the question has been to what extent the contraction of the individual economies, largely related to anti-epidemic measures (lockdowns), can be interpreted as a negative anti-inflationary shock to demand and, conversely, what proportion of the observed decline in GDP can be attributed to a negative (cost) inflationary shock on the supply side. This article shows that the currently available views of central banks and international institutions, and their interpretation of the nature of the economic shock, vary dramatically. Therefore, to contribute to this debate, we have conducted our own empirical and model analyses of data on the world's four largest advanced economies - the USA, the euro area, Japan and the United Kingdom. An empirical comparison of the pandemic-induced crisis with the global financial and economic crisis and model simulations confirm that the sharp economic downturn observed in 2020 bears, for the most part, the hallmarks of a supply shock.