Year: 2024
Type: report
Abstract: Stimulus checks have become an increasingly important policy tool in recent U.S. recessions.How does the households' marginal propensity to spend (MPX) vary as checks become larger?To quantify this size-dependence in the MPX, we augment a canonical model of durable spending by introducing a smooth adjustment hazard.We discipline this hazard by matching a rich set of micro moments.We find that the MPX declines slowly with the size of checks.In contrast, the MPX is flatter in a purely state-dependent model of durables, and declines sharply in a two-asset model of non-durables.Finally, we embed our spending model into an open-economy heterogeneous-agent New-Keynesian model.In a typical recession, a large check of $2,000 increases output by 25 cents per dollar, compared to 37 cents for a $300 check.Large checks thus remain effective but extrapolating from the response out of small checks overestimates their impact.
DOI: 10.3386/w32080
Authors: Martin Beraja, Nathan Zorzi
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4391328792