Fiscal policy during a pandemic.

Area of Science:

• Economics
• Macroeconomics
• Public Policy

Background:

• The 2020 coronavirus outbreak significantly impacted the US economy, causing a deep recession.
• The pandemic disproportionately affected contact-intensive services, with ripple effects across other sectors.
• Understanding the economic consequences and effective policy responses is crucial.

Purpose of the Study:

• To analyze the effects of the 2020 coronavirus outbreak and subsequent fiscal policy in the US.
• To evaluate the effectiveness of different fiscal interventions in mitigating the recession's impact.
• To examine the specific impact of the CARES Act of 2020.

Main Methods:

• Utilized a nonlinear dynamic stochastic general equilibrium (DSGE) model.
• Calibrated the model to match the US unemployment rate trajectory in 2020.
• Simulated and analyzed various fiscal policy scenarios.

Main Results:

• The pandemic shock altered the effectiveness of traditional policy multipliers.
• Unemployment benefits proved most effective for stabilizing income, particularly for vulnerable borrowers.
• Liquidity assistance programs were superior for stabilizing employment in sectors most affected by the pandemic.

Conclusions:

• Fiscal policy's impact ranking is sensitive to the nature of the pandemic shock.
• Targeted support, such as unemployment benefits, is vital for income stability.
• Sector-specific liquidity support is essential for employment recovery in affected industries.