Working Paper
Fiscal Policy during a Pandemic
Abstract: I use a dynamic stochastic general equilibrium model to study the effects of the 2019-20 coronavirus pandemic in the United States. The pandemic is modeled as a large negative shock to the utility of consumption of contact-intensive services. General equilibrium forces propagate this negative shock to the non-services and financial sectors, triggering a deep recession. I use a calibrated version of the model to analyze different types of fiscal policies: (i) government purchases, (ii) income tax cuts, (iii) unemployment insurance benefits, (iv) unconditional transfers, and (v) liquidity assistance to services firms. I find that government purchases yield the largest multipliers, above 1, but that there is substantial variation in terms of distributional effects among different tools. UI benefits are preferred by borrowers, but unconditional transfers are favored by savers.
Keywords: fiscal policy; financial stability; pandemic;
https://doi.org/10.20955/wp.2020.006
Status: Published in Journal of Economic Dynamics & Control
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2020-03
Number: 2020-006
Note: Publisher DOI: https://doi.org/10.1016/j.jedc.2021.104088
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