March 2021 issue contents
Modeling the Consumption Response to the CARES Act

Christopher D. Carroll,a Edmund Crawley,b Jiri Slacalek,c and Matthew N. Whited


To predict the effects of the 2020 U.S. CARES Act on consumption, we extend a model that matches responses to past consumption stimulus packages. The extension allows us to account for two novel features of the coronavirus crisis. First, during lockdowns, many types of spending are undesirable or impossible. Second, some of the jobs that disappear during the lockdown will not reappear. We estimate that, if the lockdown is short-lived (the median point of view as we are writing in April 2020), the combination of expanded unemployment insurance benefits and stimulus payments should be sufficient to allow a swift recovery in consumer spending to pre-crisis levels. If the lockdown lasts longer (or there is a "second wave"), an extension of enhanced unemployment benefits will likely be necessary for consumption spending to recover quickly.

JEL Code: D83, D84, E21, E32.

Full article (PDF, 35 pages, 1,255 kb)

a Johns Hopkins University

b Federal Reserve Board

c European Central Bank

d University of Delaware