Macroeconomic impact of the supply shock during COVID-19 pandemic in India

Abstract

Purpose

The study focuses on examining the impact of the supply shock on the Indian macroeconomic variables during the COVID-19 period.

Design/methodology/approach

Time-varying factor augmented vector autoregressive model has been employed to study the asymmetry in transmission of supply shock on Indian economy during pre- and post-COVID-19 times.

Findings

The authors find that with supply shock, retail food inflation outpaced in COVID-19 times. Production levels reported by IIP fell to abysmally low levels in the post-COVID-19 times when the economy stalled. The liquidity stimulus provided by the central bank led to the negative response of policy rates to the supply shocks during the COVID-19 times.

Originality/value

The study stands novel in examining the impact of COVID-19 pandemic on Indian economy through the lenses of asymmetric transmission of supply shock during pre- and post-COVID-19 times.

Citation

Sharma, A. and Sachdeva, P. (2024), "Macroeconomic impact of the supply shock during COVID-19 pandemic in India", Journal of Economic Studies, Vol. 51 No. 1, pp. 145-164. https://doi.org/10.1108/JES-09-2022-0474