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Modeling the Consumption Response to the CARES Act

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  • Christopher D. Carroll
  • Edmund Crawley
  • Jiri Slacalek
  • Matthew N. White

Abstract

To predict the effects of the 2020 U.S. CARES Act on consumption, we extend a model that matches responses to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during lockdowns, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear. We estimate that, if the lockdown is short-lived (the median point of view as we are writing in April 2020), the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to pre-crisis levels. If the lockdown lasts longer (or there is a ‘second wave’), an extension of enhanced unemployment benefits will likely be necessary for consumption spending to recover quickly.

Suggested Citation

  • Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Matthew N. White, 2020. "Modeling the Consumption Response to the CARES Act," NBER Working Papers 27876, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27876
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    Cited by:

    1. Seungjun Baek & Seongeun Kim & Tae-hwan Rhee & Wonmun Shin, 2023. "How effective are universal payments for raising consumption? Evidence from a natural experiment," Empirical Economics, Springer, vol. 65(5), pages 2181-2211, November.
    2. Graham, James & Ozbilgin, Murat, 2021. "Age, industry, and unemployment risk during a pandemic lockdown," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    3. Cho, Duksang, 2021. "Social Distancing, Labor Supply, and Income Distribution," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 43(2), pages 1-22.
    4. Nicholas W. Papageorge & Matthew V. Zahn & Michèle Belot & Eline Broek-Altenburg & Syngjoo Choi & Julian C. Jamison & Egon Tripodi, 2021. "Socio-demographic factors associated with self-protecting behavior during the Covid-19 pandemic," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(2), pages 691-738, April.
    5. Nygaard, Vegard M. & Sørensen, Bent E. & Wang, Fan, 2022. "Optimal allocations to heterogeneous agents with an application to stimulus checks," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    6. Albuquerque, Bruno & Green, Georgina, 2023. "Financial concerns and the marginal propensity to consume in COVID times: Evidence from UK survey data," Journal of Macroeconomics, Elsevier, vol. 78(C).
    7. Ministry of Finance, 2021. "Saving Lives and Livelihoods 01 Amidst a Once-in-a-Century Crisis: Chapter I, Economic Survey 2020-21," Working Papers id:13133, eSocialSciences.
    8. Carroll, Christopher D. & Crawley, Edmund & Slacalek, Jiri & White, Matthew N., 2020. "How has the U.S. coronavirus aid package affected household spending?," Research Bulletin, European Central Bank, vol. 75.
    9. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2020. "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S," NBER Working Papers 27794, National Bureau of Economic Research, Inc.
    10. Miguel Garza Casado & Britta Glennon & Julia Lane & David McQuown & Daniel Rich & Bruce A. Weinberg, 2020. "The Aggregate Effects of Fiscal Stimulus: Evidence from the COVID-19 Unemployment Supplement," NBER Working Papers 27576, National Bureau of Economic Research, Inc.
    11. Albuquerque, Bruno & Varadi, Alexandra, 2022. "Consumption effects of mortgage payment," Bank of England working papers 963, Bank of England.
    12. Gagnon Etienne & Johannsen Benjamin K. & López-Salido David, 2022. "Supply-side Effects of Pandemic Mortality: Insights from an Overlapping-generations Model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 22(1), pages 1-21, January.
    13. Dreger, Christian, 2023. "The impact of demand and supply shocks on inflation. Evidence for the US and the Euro area," MPRA Paper 116316, University Library of Munich, Germany.
    14. Xingyuan Yao, 2021. "COVID-19 Pandemic and economic stimulus policy inequality: evidence from quasi-natural experiments," Working Papers 585, ECINEQ, Society for the Study of Economic Inequality.
    15. Anand Chopra & Michael B. Devereux & Amartya Lahiri, 2022. "Pandemics through the lens of occupations," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 540-580, February.
    16. Chang Ma & John Rogers & Sili Zhou, 2023. "Modern Pandemics: Recession and Recovery," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 2098-2130.
    17. Lester C Hunt & Anqi Zhang & Shuonan Zhang, 2022. "Recession and Recovery of the Pandemic," Working Papers in Economics & Finance 2022-05, University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group.
    18. repec:zbw:bofitp:2020_016 is not listed on IDEAS
    19. James MacGee & Thomas Michael Pugh & Kurt See, 2022. "The heterogeneous effects of COVID‐19 on Canadian household consumption, debt and savings," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 54-87, February.
    20. Chang Ma & John H. Rogers & Sili Zhou, 2020. "Modern Pandemics: Recession and Recovery," International Finance Discussion Papers 1295, Board of Governors of the Federal Reserve System (U.S.).
    21. Gamber, William & Graham, James & Yadav, Anirudh, 2023. "Stuck at home: Housing demand during the COVID-19 pandemic," Journal of Housing Economics, Elsevier, vol. 59(PB).
    22. Kristen Tauber & Willem Van Zandweghe, 2021. "Why Has Durable Goods Spending Been So Strong during the COVID-19 Pandemic?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(16), pages 1-6, July.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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

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