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The production impact of "cash-for-clunkers": implications for stabilization policy

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Abstract
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.

Suggested Citation

  • Adam Copeland & James A. Kahn, 2011. "The production impact of "cash-for-clunkers": implications for stabilization policy," Staff Reports 503, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:503
    Note: 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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    References listed on IDEAS

    as
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    Cited by:

    1. Alessandro Gavazza & Alessandro Lizzeri & Nikita Roketskiy, 2014. "A Quantitative Analysis of the Used-Car Market," American Economic Review, American Economic Association, vol. 104(11), pages 3668-3700, November.
    2. West, Jeremy & Hoekstra, Mark & Meer, Jonathan & Puller, Steven L., 2017. "Vehicle miles (not) traveled: Fuel economy requirements, vehicle characteristics, and household driving," Journal of Public Economics, Elsevier, vol. 145(C), pages 65-81.
    3. Ashok Kaul & Gregor Pfeifer & Stefan Witte, 2016. "The incidence of Cash for Clunkers: Evidence from the 2009 car scrappage scheme in Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(6), pages 1093-1125, December.
    4. Grigolon, Laura & Leheyda, Nina & Verboven, Frank, 2016. "Scrapping subsidies during the financial crisis — Evidence from Europe," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 41-59.
    5. Huang, Jian & Leng, Mingming & Liang, Liping & Luo, Chunlin, 2014. "Qualifying for a government’s scrappage program to stimulate consumers’ trade-in transactions? Analysis of an automobile supply chain involving a manufacturer and a retailer," European Journal of Operational Research, Elsevier, vol. 239(2), pages 363-376.
    6. Jeremy West & Mark Hoekstra & Jonathan Meer & Steven L. Puller, 2015. "Vehicle Miles (Not) Traveled: Why Fuel Economy Requirements Don't Increase Household Driving," NBER Working Papers 21194, National Bureau of Economic Research, Inc.
    7. Chao Wei & Shanjun Li, 2014. "The Cost of Greening Stimulus: A Dynamic Discrete Choice Analysis of Vehicle Scrappage Programs," Working Papers 2014-12, The George Washington University, Institute for International Economic Policy.
    8. Adam Copeland & James A. Kahn, 2012. "Exchange rate pass-through, markups, and inventories," Staff Reports 584, Federal Reserve Bank of New York.
    9. Klößner, Stefan & Pfeifer, Gregor, 2015. "Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113207, Verein für Socialpolitik / German Economic Association.
    10. Tim Noparumpa & Kanis Saengchote, 2017. "The Impact of Tax Rebate on Used Car Market: Evidence from Thailand," International Review of Finance, International Review of Finance Ltd., vol. 17(1), pages 147-154, March.
    11. Mark Hoekstra & Steven L. Puller & Jeremy West, 2017. "Cash for Corollas: When Stimulus Reduces Spending," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 1-35, July.
    12. Heechul Min, 2015. "Korea's Cash-for-Clunkers Program: Household-Level Evidence," Asian Economic Journal, East Asian Economic Association, vol. 29(4), pages 347-363, December.
    13. Paredes, Joan, 2017. "Subsidising car purchases in the euro area: any spill-over on production?," Working Paper Series 2094, European Central Bank.
    14. Qiuyun Zhao & Zeyu Li & Zuoxiang Zhao & Jinqiu Ma, 2019. "Industrial Policy and Innovation Capability of Strategic Emerging Industries: Empirical Evidence from Chinese New Energy Vehicle Industry," Sustainability, MDPI, vol. 11(10), pages 1-17, May.
    15. Angela Köppl & Margit Schratzenstaller, 2022. "Macroeconomic Effects of Green Recovery Programmes. Conceptual Framing and a Review of the Empirical Literature," WIFO Working Papers 646, WIFO.
    16. Laborda, Juan & Moral, María J., 2019. "Scrappage by age: Cash for Clunkers matters!," Transportation Research Part A: Policy and Practice, Elsevier, vol. 124(C), pages 488-504.
    17. James Kahn & Adam Copeland, 2012. "Durable Goods Production and Inventory Dynamics: An Application to the Automobile Industry," 2012 Meeting Papers 270, Society for Economic Dynamics.

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    More about this item

    Keywords

    cash-for-clunkers; automobiles; stimulus;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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