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Title: The Coronavirus Stimulus Package: How large is the transfer multiplier?

Author(s): Christian Bayer, Benjamin Born, Ralph Luetticke and Gernot M�ller

Publication Date: April 2020

Keyword(s): CARES Act, Coronavirus, COVID-19, Fiscal policy, lockdown, Quarantine, Stimulus, targeted transfer and transfer multiplier

Programme Area(s): Monetary Economics and Fluctuations

Abstract: In response to the COVID-19 pandemic, large parts of the economy have been locked down and, as a result, households' income risk has risen sharply. At the same time, policy makers have put forward the largest stimulus package in history. In the U.S., it amounts to $2 trillion, a quarter of which is earmarked for transfer payments to households. To the extent that such transfers are conditional on recipients being unemployed, they mitigate income risk and the adverse impact of the lockdown ex ante. Unconditional transfers, in contrast, stabilize income ex post. We simulate the effects of a lockdown in a medium-scale HANK model and quantify the impact of transfers. For the short run, we find large differences in the transfer multiplier: it is 0.25 for unconditional transfers and 1.5 for conditional transfers. Overall, we find that the transfers reduce the output loss due to the pandemic by up to 5 percentage points.

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Bibliographic Reference

Bayer, C, Born, B, Luetticke, R and M�ller, G. 2020. 'The Coronavirus Stimulus Package: How large is the transfer multiplier?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14600