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Fiscal policy during a pandemic

Miguel Faria-e-Castro

Journal of Economic Dynamics and Control, 2021, vol. 125, issue C

Abstract: I study the effects of the 2020 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 that matches the path of the US unemployment rate in 2020 to analyze different types of fiscal policies. I find that the pandemic shock changes the ranking of policy multipliers. Unemployment benefits are the most effective tool to stabilize income for borrowers, who are the hardest hit during a pandemic, while liquidity assistance programs are the most effective if the policy objective is to stabilize employment in the affected sector. I also study the effects of the $2.2 trillion CARES Act of 2020.

Keywords: Fiscal policy; Pandemic; COVID-19; CARES Act; Nonlinear DSGE (search for similar items in EconPapers)
JEL-codes: E6 G01 H00 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:125:y:2021:i:c:s0165188921000233

DOI: 10.1016/j.jedc.2021.104088

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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