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Fiscal Policy during a Pandemic

Miguel Faria-e-Castro

No 2020-006, Working Papers from Federal Reserve Bank of St. Louis

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 H0 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-03, Revised 2021-02
New Economics Papers: this item is included in nep-dge, nep-ias, nep-mac and nep-pub
Note: Publisher DOI: https://doi.org/10.1016/j.jedc.2021.104088
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Published in Journal of Economic Dynamics & Control

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:87616

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DOI: 10.20955/wp.2020.006

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