Modeling the Consumption Response to the Cares Act

To predict the effects of the 2020 U S CARES Act on con-sumption, 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 lock-down 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 © 2021, European Central Bank All rights reserved