Is the American Rescue Plan Taking Us Back to the ’60s?

RePEc Short ID: pba542
ORCID iD: 0000-0003-3967-1453

Barnichon, Régis; Oliveira, Luiz E.; Shapiro, Adam Hale

Journal Article

Is the American Rescue Plan Taking Us Back to the ’60s?

Abstract: The American Rescue Plan provided fiscal support during a strong economic rebound, raising concerns about the risk of fueling inflation. One way to assess this risk of economic overheating uses the ratio of job vacancies to unemployment, which measures labor market slack more accurately and, hence, can predict future inflation better than the unemployment rate alone. Estimates suggest that the fiscal plan acts to temporarily raise the vacancy-to- unemployment ratio, in turn pushing up inflation by about 0.3 percentage point per year through 2022.

Keywords: covid19; inflation; labor market slack; American Rescue Plan;