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. One example for this is the Coronavirus Aid, Relief, and Economic Security (CARES) Act which came into law in the US at the end of March 2020.
In their latest research paper The Coronavirus Stimulus Package: How large is the transfer multiplier?, Benjamin Born, Associate Professor of Macroeconomics at Frankfurt School, Christian Bayer from the University of Bonn, Ralph Luetticke from the University College London, and Gernot J. Müller from the University of Tübingen analyse the quantitative impact of the conditional and unconditional transfer components of the CARES act and assess to what extent they may limit the economic fallout from the COVID-19 pandemic.
“Conditional transfers which top up unemployment benefits are particularly effective because they reduce income risk”, said Benjamin Born. ”In total, the transfer components of the stimulus reduce the output loss due to the lockdown by about 50 percent.”