Political Partisanship, COVID-19 Lockdown Policies, and Inflation Dynamics : Evidence of US Metropolitan Areas

Based on a dynamic panel data model, this paper estimates the impact of lockdown policies on inflation with metropolitan-level data in the US. After controlling for the unit/time fixed effects and a number of aggregate demand/supply shifters, lockdown policies created a mild inflationary effect nationwide, though the individual effect is heterogeneous. The inflationary impact was most pronounced for Republican-governed states that switched votes from President Trump in 2016 to President (elect) Biden in 2020, suggesting price stability is a source of voting behavior. Lockdown policies, on the contrary, caused deflation in Democratic-governed states where unemployment rates and public compliance with lockdown measures were presumably higher. Our results indicate that the economic consequences of public policies depend critically on the political partisanship of the region