The Production Impact of "Cash-for-Clunkers": Implications for Stabilization Policy - Federal Reserve Bank of New York

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Staff Reports

The Production Impact of "Cash-for-Clunkers": Implications for Stabilization Policy

July 2011 Number 503

JEL classification: E23, E65, L62

Authors: Adam Copeland and James Kahn

Stabilization policies frequently aim to boost spending as a means to increase GDP. 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.

Available only in PDF pdf

32 pages / 230 kb

For a published version of this report, see Adam Copeland and James Kahn, "The Production Impact of "Cash-for-Clunkers": Implications for Stabilization Policy," Economic Inquiry 51, no. 1 (January 2013): 288-303.

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