The Coronavirus Stimulus Package: How Large is the Transfer Multiplier?

50 Pages Posted: 8 May 2020 Last revised: 27 May 2022

See all articles by Christian Bayer

Christian Bayer

University of Bonn

Benjamin Born

Frankfurt School of Finance & Management

Ralph Luetticke

University College London

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: April 2020

Abstract

In response to the COVID-19 pandemic, large parts of the economy were locked down and, as a result, households' income risk rose sharply. At the same time, policy makers put forward the largest stimulus package in history. In the U.S., it amounted to $2 trillion, a quarter of which represented transfer payments to households. To the extent that such transfers were i) announced in advance and ii) conditional on recipients being unemployed, they mitigated income risk associated with the lockdown - in contrast to unconditional transfers. We develop a baseline scenario for a COVID-19 recession in a medium-scale HANK model and use counterfactuals to quantify the impact of transfers. For the short run, we find large differences in the transfer multiplier: it is negligible for unconditional transfers and about unity for conditional transfers. Overall, we find that the transfers reduced the output loss due to the pandemic by some 2 percentage points at its trough.

Keywords: CARES Act, conditional transfer, Coronavirus, COVID-19, Fiscal policy, lockdown, Quarantine, Stimulus, transfer multiplier

JEL Classification: D31, E32, E62

Suggested Citation

Bayer, Christian and Born, Benjamin and Luetticke, Ralph and Müller, Gernot J., The Coronavirus Stimulus Package: How Large is the Transfer Multiplier? (April 2020). CEPR Discussion Paper No. DP14600, Available at SSRN: https://ssrn.com/abstract=3594222

Christian Bayer (Contact Author)

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

Benjamin Born

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Ralph Luetticke

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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