A tale of two stimulus payments: 2001 versus 2008

Abstract

Fiscal stimulus payments (i.e., direct lump-sum payments from the government to households) were used in the recessions of 2001 and 2008 in an attempt to simultaneously alleviate households' economic hardship and stimulate aggregate demand. Despite the similarities between the two stimulus policies, there were important differences in both their design and the prevailing economic conditions. We use the model of Kaplan and Violante (2013) to compare the consumption response to these policies. Consistent with empirical evidence from microdata, we find that the consumption response was around one-third lower in 2008, primarily due to the larger size of the payments.