Macro Implications of Extending Emergency Unemployment Compensation

From CBO:

…CBO estimates that extending the current EUC program and other related expiring provisions until the end of 2014 would increase inflation-adjusted GDP by 0.2 percent and increase full-time-equivalent employment by 0.2 million in the fourth quarter of 2014. …

…Those figures represent CBO’s central estimates, which correspond to the assumption that key parameters of economic behavior (in particular, the extent to which higher federal spending boosts aggregate demand in the short term) equal the midpoints of the ranges that CBO uses. The full ranges that CBO uses for those parameters suggest that, in the fourth quarter of calendar year 2014, GDP could be increased very slightly or by as much as 0.3 percent, and employment could be increased very slightly or by as much as 0.3 million.

The high end impact (which would seem more relevant given the ZLB and amount of slack in the economy [1]) is shown below.

Figure 1: Log GDP (blue), and implied GDP from mean of WSJ survey from December 2013 (red), and counterfactual assuming extension of EUC (purple +). Source: BEA, 2013Q3 3rd release, WSJ (December 2013 survey), CBO and author’s calculations.The calculations assume the forecasters in the WSJ survey assumed that the EUC would not be extended.

This piece is cross-posted from Econbrowser with permission.