Fiscal Policy during a Pandemic

RePEc Short ID: pfa225
ORCID iD: 0000-0002-3759-2172

Faria-e-Castro, Miguel

doi:10.20955/wp.2020.006

Working Paper Revision

Fiscal Policy during a Pandemic

Abstract: I study the effects of the 2019-20 coronavirus outbreak in the United States and subsequent fiscal policy response in a nonlinear DSGE model. The pandemic is a shock to the utility of contact-intensive services that propagates to other sectors via general equilibrium, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers may favor unconditional transfers. Liquidity assistance programs are effective if the policy objective is to stabilize employment in the affected sector. I also study the effects of the $2 trillion CARES Act of 2020.

Keywords: fiscal policy; financial stability; pandemic;

JEL Classification: E6; G01; H0;

https://doi.org/10.20955/wp.2020.006

Status: Published in Journal of Economic Dynamics & Control