Assessing the Payroll Protection Program: A Framework and Preliminary Results

30 Pages Posted: 5 Jun 2020

See all articles by John Manuel Barrios

John Manuel Barrios

Washington University in St. Louis - Olin Business School

Michael Minnis

University of Chicago - Booth School of Business

William C. Minnis

Eastern Illinois University -Lumpkin College of Business and Technology

Joost Sijthoff

University of Chicago - Booth School of Business

Date Written: May 13, 2020

Abstract

We develop a simple model to predict requests for the Payroll Protection Program (PPP) and compare these predictions to the actual allocations. The model suggests the amount of requested funds could total $750 billion, though this is likely a high watermark conditional on several assumptions. The model also generates expectations by industry, state, and firm size, allowing us to assess model performance in the cross-section. The model performs reasonably well. Through the May 1 funding, the state-level cross-sectional model has an R2 of 99.3% and the average absolute prediction error across states is 6.4%. Interestingly, the prediction errors from the first funding round are significantly negatively correlated to the errors in the second funding round, revealing that the allocations were systematically different in the two rounds. Ultimately, the results suggest that the payroll-based model predicts PPP allocations well and that the funds were allocated as designed. One potential inference from these results is that critique about PPP allocations should be focused on program design rather than program execution. This analysis should be useful for subsequent studies assessing the performance of the PPP.

Keywords: Payroll Protection Program, PPP

JEL Classification: G00, G01, G38, M21, M40

Suggested Citation

Barrios, John Manuel and Minnis, Michael and Minnis, William C. and Sijthoff, Joost, Assessing the Payroll Protection Program: A Framework and Preliminary Results (May 13, 2020). Available at SSRN: https://ssrn.com/abstract=3600595 or http://dx.doi.org/10.2139/ssrn.3600595

John Manuel Barrios

Washington University in St. Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Michael Minnis (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

William C. Minnis

Eastern Illinois University -Lumpkin College of Business and Technology ( email )

600 Lincoln Avenue
Charleston, IL 61920
United States
812-243-3920 (Phone)

Joost Sijthoff

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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