Description

The policies adopted in Chile to mitigate the impact of the Covid-19 pandemic stand out for their magnitude: they implied an increase in the liquidity of the household sector of 29% of the 2019 GDP in an interval of 18 months. We use the 2021 Chilean Household Financial Survey to assess the impact of the pandemic and the massive liquidity shock generated by the policy response on financial decisions and the financial situation of Chilean households. We find that households used the additional liquidity to recover their consumption levels, reduce debt, and accumulate liquid assets. Once the support measures were phased out, households retained buffers, allowing them to maintain a high level of expenditure despite unfavorable macroeconomic changes. Finally, we document that the ultimate effect of the implemented policies was a deterioration in households' financial conditions, particularly for those with lower incomes.