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Fiscal Policy during a Pandemic

Author

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  • Miguel Faria-e-Castro

Abstract

I study the effects of the 2019-20 coronavirus outbreak in the United States and subsequent fiscal policy response in a nonlinear DSGE model. The pandemic is a shock to the utility of contact-intensive services that propagates to other sectors via general equilibrium, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies. I find that UI benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit, while savers may favor unconditional transfers. Liquidity assistance programs are effective if the policy objective is to stabilize employment in the affected sector. I also study the effects of the $2 trillion CARES Act of 2020.

Suggested Citation

  • Miguel Faria-e-Castro, 2020. "Fiscal Policy during a Pandemic," Working Papers 2020-006, Federal Reserve Bank of St. Louis, revised 24 Mar 2020.
  • Handle: RePEc:fip:fedlwp:87616
    DOI: 10.20955/wp.2020.006
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    References listed on IDEAS

    as
    1. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
    2. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Fiscal Policy during a Pandemic
      by Christian Zimmermann in NEP-DGE blog on 2020-03-31 03:24:07

    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19
    2. > Economics of Welfare > Health Economics > Economics of Pandemics > Policy responses > Macroeconomic
    3. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy

    Citations

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    Cited by:

    1. Francesco Busato & Bruno Chiarini & Gianluigi Cisco & Maria Ferrara & Elisabetta Marzano, 2020. "Lockdown Policies: A Macrodynamic Perspective for Covid-19," CESifo Working Paper Series 8465, CESifo.
    2. Francesco MAGRIS & Daria ONORI, 2020. "The (de)Stabilizing Role of Fiscal and Monetary Policy," LEO Working Papers / DR LEO 2746, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    3. Ricardo J. Caballero & Alp Simsek, 2020. "Asset Prices and Aggregate Demand in a "Covid-19" Shock: A Model of Endogenous Risk Intolerance and LSAPs," NBER Working Papers 27044, National Bureau of Economic Research, Inc.
    4. Ambrocio, Gene & Juselius, Mikael, 2020. "Dealing with the costs of the COVID-19 pandemic – what are the fiscal options?," BoF Economics Review 2/2020, Bank of Finland.
    5. De Santis, Roberto A. & Van der Veken, Wouter, 2020. "Forecasting macroeconomic risk in real time: Great and Covid-19 Recessions," Working Paper Series 2436, European Central Bank.
    6. Federico Sturzenegger, 2020. "A Note on Hibernation in a Lockdown," Working Papers 137, Universidad de San Andres, Departamento de Economia, revised Apr 2020.

    More about this item

    Keywords

    fiscal policy; financial stability; pandemic;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G01 - Financial Economics - - General - - - Financial Crises
    • H0 - Public Economics - - General

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