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

32 Pages Posted: 26 Jul 2011

See all articles by Adam M. Copeland

Adam M. Copeland

Federal Reserve Bank of New York

James A. Kahn

Yeshiva University; National Bureau of Economic Research (NBER)

Date Written: July 1, 2011

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.

Keywords: Cash-for-Clunkers, automobiles, stimulus

JEL Classification: E23, E65, L62

Suggested Citation

Copeland, Adam M. and Kahn, James A., The Production Impact of 'Cash-for-Clunkers': Implications for Stabilization Policy (July 1, 2011). FRB of New York Staff Report No. 503, Available at SSRN: https://ssrn.com/abstract=1895497 or http://dx.doi.org/10.2139/ssrn.1895497

Adam M. Copeland (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

James A. Kahn

Yeshiva University ( email )

500 West 185th Street
New York, NY 10033
United States
212-340-7863 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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