Effects of Covid on the U.S. economy: update after 4 quarters of data

Peter Dixon, Maureen Rimmer and James A. Giesecke

No 333259, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper describes an ongoing project in which we apply a quarterly version of the USAGE model to generate forecasts for the U.S. economy for 2020 and 2021 focusing on the effects of COVID-19. USAGE is a detailed dynamic model of the U.S. economy. It generates results for macro, industry and regional variables. At this stage it seems likely that the Covid downturn will be mild relative to the GFC and will not be long-lived. Over the 2 years from Y20Q1 to Y21Q4, the pandemic will cost the U.S. economy about 8 per cent of a year’s GDP. This is the loss of output measured by the difference between what the U.S. economy would have produced without the pandemic compared with what it is producing with the pandemic. Present indications are that by 2022 GDP will be back close to its no-Covid path. By comparison, over the two years from Y08Q3 to Y10Q2, the GFC cost the U.S. economy about 9.4% of a year’s GDP, and the negative effects continued for at least another two years. Through 2021, tourism-related industries and regions will remain depressed, but the rest of the economy is likely to recover. In making our forecasts for 2021, we assumed that the Biden administration will implement a stimulus package sufficient to generate 5 per cent year-on-year growth in GDP. The size of the required package depends on reactions of households and other actors in the economy. If households are willing to spend income supplements in the way in which they spend normal household income, then a relatively small package will be adequate, a little over $1 trillion. On the other hand, if households adopt a consumption propensity on stimulus payments that is half of that on normal income, then a package of over $2 trillion will be required. One interpretation of the Biden proposal for $1.9 trillion is that it is a request to have the freedom to support strong growth. If stimulus is successful and strong growth emerges, then it may not be necessary to use the entire package.

Keywords: Health; Economics; and; Policy (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:333259

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