Fiscal Policy During a Pandemic

53 Pages Posted: 29 Apr 2020

Date Written: March, 2020

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.

JEL Classification: E6, G01, H0

Suggested Citation

Faria-e-Castro, Miguel, Fiscal Policy During a Pandemic (March, 2020). Available at SSRN: https://ssrn.com/abstract=3587693 or http://dx.doi.org/10.20955/wp.2020.006

Miguel Faria-e-Castro (Contact Author)

Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
887
Abstract Views
2,527
rank
34,262
PlumX Metrics