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The Coronavirus Stimulus Package: How Large is the Transfer Multiplier

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  • Christian Bayer
  • Benjamin Born
  • Ralph Luetticke
  • Gernot J Müller

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 United States 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 heterogeneous agent new Keynesian 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 two percentage points at its trough.

Suggested Citation

  • Christian Bayer & Benjamin Born & Ralph Luetticke & Gernot J Müller, 2023. "The Coronavirus Stimulus Package: How Large is the Transfer Multiplier," The Economic Journal, Royal Economic Society, vol. 133(652), pages 1318-1347.
  • Handle: RePEc:oup:econjl:v:133:y:2023:i:652:p:1318-1347.
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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