Staff Working Paper No. 1,112
By Thibaut Duprey, Artur Kotlicki, Daniel E Rigobon and Philip Schnattinger
We investigate the macroeconomic impacts of mothballed businesses – those that closed temporarily – on sectoral equilibrium prices after a negative demand shock. First, we introduce a new establishment-level data set derived from Google Places. We confirm the importance of temporary closures during the Covid-19 pandemic. Data on establishment reviews also suggests that preventing productive businesses from permanently exiting could support employment. Second, we embed these findings into a model of heterogeneous firm dynamics. By maintaining productive capacity during downturns, temporary closures initially support employment and subsequently reduce price pressures. Our results suggest that pandemic fiscal support for temporary closures may have eased inflationary pressures.
Bouncing back: how mothballing curbs prices 