How has the U.S. coronavirus aid package affected household spending?

The 2020 US CARES Act (Coronavirus Aid, Relief, and Economic Security) aimed to bolster consumer spending. We model the spending and saving behaviour of households during the coronavirus (COVID-19) pandemic, differentiating between the employed, temporarily unemployed and persistently unemployed, and examine how the CARES Act should affect this behaviour. To do this we use a benchmark model which realistically captures the differences in income, wealth and spending between households, and which matches the responses to previous stimulus policies well. We extend the model to account for the fact that, during a lockdown, many types of spending are undesirable or impossible, and that some of the jobs that disappear during lockdown will not reappear when it is lifted. We estimate that, in the case of a short-lived lockdown (which was the median point of view in April 2020), the CARES Act should be sufficient to allow a swift recovery in consumer spending to its pre-crisis levels. For a longer-lasting lockdown (if there is a “second wave” of the virus), an extension of enhanced unemployment benefits is likely to be necessary for consumption spending to recover quickly. We have made the modelling software available for other researchers, so that they can examine the consequences of alternative assumptions about the length of the lockdown, distribution of the stimulus payments, and other modelling choices. JEL Classification: E31, E32, E37, E52