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

45 Pages Posted: 8 May 2020 Last revised: 16 Aug 2020

See all articles by Christian Bayer

Christian Bayer

University of Bonn

Benjamin Born

Frankfurt School of Finance & Management gemeinnützige GmbH

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 have been locked down and, as a result, households' income risk has risen sharply. At the same time, policy makers have put forward the largest stimulus package in history. In the U.S., it amounts to $2 trillion, a quarter of which is earmarked for transfer payments to households. To the extent that such transfers are conditional on recipients being unemployed, they mitigate income risk and the adverse impact of the lockdown ex ante. Unconditional transfers, in contrast, stabilize income ex post. We simulate the effects of a lockdown in a medium-scale HANK model and quantify the impact of transfers. For the short run, we find large differences in the transfer multiplier: it is 0.25 for unconditional transfers and 1.5 for conditional transfers. Overall, we find that the transfers reduce the output loss due to the pandemic by up to 5 percentage points.

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 gemeinnützige GmbH ( 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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