We show that to compute the transfer multiplier correctly it is essential to account for the conditions under which the transfer takes place. The lockdown generates income risk and major recession The model is uniquely suited for our analysis of the transfer multiplier, because it accounts for both, possibly different labor market outcomes across households as well as the frictions that are necessary for a full-fledged business cycle analysis. It features heterogenous agents (HA) in an otherwise conventional medium-sized New Keynesian (NK) model. We perform the analysis in a model of the HANK type, estimated on US data in earlier work (Bayer et al. the dollar change of the US GDP per dollar spent on transfers (Bayer et al. In a new paper, we quantify the multiplier effect of these transfer payments, i.e. These measures provide some relief for the individuals that are hit hard by the crisis, but they are also bound to have a macroeconomic impact. Each of these items is expected to amount to some $250 billion of federal expenditures. Conditional on being unemployed, this top-up payment is lump sum and may run up to the end of July 2020. In addition, it includes a top-up to state unemployment benefits of $600 per week. Under the CARES act, any adult in the US population with a gross income of $75,000 or less receives a one-time payment of $1,200. To put this into perspective, recall that the American Recovery and Reinvestment Act, legislated in 2009 in response to the financial crisis, mobilized only $800 billion of additional federal spending. As a result, $2 trillion of federal funds are being disbursed to households and firms through various channels.
One of the measures without historical precedent is the ‘Coronavirus Aid, Relief, and Economic Security (CARES) Act’, signed into law by President Trump on 27 March 2020. 2020, Gali 2020), they are certainly impressive in terms of size and scope. And while actual measures are perhaps not as radical as some proposals (e.g. In fact, policy makers have put in place a variety of measures rather speedily. The same holds for the response of economic policy to the crisis. The economic fallout of the COVID-19 pandemic is unprecedented and widely discussed.
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