The Production Impact of 'Cash-for-Clunkers': Implications for Stabilization Policy

Abstract:     
Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “Cash-for-Clunkers” program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such policies by their impact on spending alone.

Number of Pages in PDF File: 32

Keywords: Cash-for-Clunkers, automobiles, stimulus

JEL Classification: E23, E65, L62

working papers series