Working Paper Revision
Fiscal Policy during a Pandemic
Abstract: I study the effects of the 2020 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 that matches the path of the US unemployment rate in 2020 to analyze different types of fiscal policies. I find that the pandemic shock changes the ranking of policy multipliers. Unemployment benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit during a pandemic, while liquidity assistance programs are the most effective if the policy objective is to stabilize employment in the affected sector. I also study the effects of the $2.2 trillion CARES Act of 2020.
Keywords: fiscal policy; pandemic; COVID-19; CARES Act; nonlinear DSGE;
JEL Classification: E6; G01; H0;
https://doi.org/10.20955/wp.2020.006
Status: Published in Journal of Economic Dynamics & Control
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2021-02
Number: 2020-006
Note: Publisher DOI: https://doi.org/10.1016/j.jedc.2021.104088
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