Dennis Bonam, Andra Smădu
How did past major pandemics affect inflation dynamics? This column estimates the long-run effects of pandemics on trend inflation in Europe using historical data since the 14th century. We find that, following a pandemic event, trend inflation falls steadily below its initial level for nearly a decade. This long-run depressing effect is also observed in major individual European countries – France, Germany, Italy, the Netherlands, and the UK. The authors conclude by discussing why the effects of the COVID-19 pandemic on inflation could play out differently this time around.