THE PRODUCTION IMPACT OF “CASH-FOR-CLUNKERS”: IMPLICATIONS FOR STABILIZATION POLICY

Authors

  • ADAM COPELAND,

    1. Copeland: Research and Statistics Group, Federal Reserve Bank of New York, New York, NY. Phone 1-212-740-7490, Fax 1-212-740-8363, E-mail adam.copeland@ny.frb.org
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  • JAMES KAHN

    1. Kahn: Henry and Bertha Kressel Professor, Department of Economics, Yeshiva University, New York, NY. Phone 1-212-960-5400, Fax 1-212-960-0846, E-mail james.kahn@yu.edu
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    • The views expressed in this article are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System.


Abstract

Stabilization policies frequently aim to boost spending as a means to increase gross domestic product. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “cash-for-clunkers” program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such policies by their impact on spending alone. (JEL E23, E65, L62)

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