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The Macroeconomic Effect of Stimulus Checks: Evidence from Postwar Veterans’ Payments

Author

Listed:
  • Guerreiro, Joao
  • Hazell, Jonathon
  • Känzig, Diego
  • Manuel, Edward

Abstract

Do stimulus checks — one-off, deficit-financed lump-sum payments to households — boost the economy? We study a natural experiment: payments to U.S. veterans after World War II that mimic stimulus checks but were plausibly exogenous to the economy. These payments led to a temporary increase in transfers and a persistent, hump-shaped increase in consumption. The transfer multiplier — the cumulative response of consumption to transfers — reaches 1 after six months and exceeds 2 after a year. The standard heterogeneous-agent New Keynesian model cannot match the hump-shaped consumption response. A version with imperfect expectations — with households underreacting on impact but overreacting at longer horizons — can match our estimates.

Suggested Citation

  • Guerreiro, Joao & Hazell, Jonathon & Känzig, Diego & Manuel, Edward, 2026. "The Macroeconomic Effect of Stimulus Checks: Evidence from Postwar Veterans’ Payments," CEPR Discussion Papers 21941, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21941
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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