By John Seliski, Aaron Betz, Yiqun Gloria Chen, U. Devrim Demirel, Junghoon Lee, and Jaeger Nelson.
This paper describes key methods that the Congressional Budget Office used to estimate the effects on real (inflation-adjusted) output, or gross domestic product, of the laws enacted in response to the 2020 coronavirus pandemic. Taken together, that legislation substantially changed policies governing taxes and spending and provided significant financial support to households, businesses, and state and local governments through various channels. To quantify the short-term effects that those laws had on output by means of their influence on overall demand for goods and services, CBO used delayed and reduced estimates of the output multiplier to reflect the effects of social distancing. The agency combined estimates of the effects on overall demand with those on the supply of labor in the economy, when applicable, to examine the short-term effects of enhanced unemployment compensation, the Paycheck Protection Program and related provisions, the Federal Reserve’s emergency lending facilities, and other provisions. To estimate the longer-term effects of pandemic-related legislation on output, CBO used its Solow-type growth model to quantify the effect of higher federal deficits on national saving and private investment.