Stimulating Auto Markets

How does fiscal stimulus affect durable goods sales and to what extent does stimulus drive inflation? We study this question in the context of how the unprecedented pandemic fiscal stimulus affected household car purchases and auto prices. Using administrative data on vehicle registrations, we exploit the timing of nearly $900 billion in stimulus payments and geographic differences in program exposure to identify causal effects on sales. We find the stimulus increased purchases by 5.5 million vehicles (3.2%) during 2020–2022, implying a medium-run (3-year) marginal propensity to spend (MPX) on autos of 0.19 and a total marginal propensity to consume (MPC) of 0.47. Despite this substantial demand response, fiscal transfers account for less than 20% of the surge in auto prices. In a general equilibrium model with new and used markets, we show how secondary-market interactions dampen inflation. When transfers push households onto the new-car margin, trade-ins expand used supply and limit price increases. This channel weakens when supply is tight or when policy targets borrowing constraints, in which case stimulus manifests more as inflation than output. Non-fiscal factors, including supply constraints, relaxed credit conditions, and preference shifts, explain the majority of the observed inflation.