4 ms·

The last paragraph of that section strongly implies that the US fiscal multiplier is zero. Keep in mind that the multiplier needs to be greater than one for a

The last paragraph of that section strongly implies that the US fiscal multiplier is zero. Keep in mind that the multiplier needs to be greater than one for a positive effect. > More recently three economists with the NBER and IMF have published a working paper examining economic features that impact fiscal multipliers. They found that the output effect of an increase in government consumption is larger in industrial than in developing countries, the fiscal multiplier is relatively large in economies operating under predetermined exchange rate but zero in economies operating under flexible exchange rates; fiscal multipliers in open economies are lower than in closed economies and fiscal multipliers in high-debt countries are also zero. US has an open economy, high debt, and flexible exchange rate.

freehunter 12y ago
It really depends on when the money is spent and what the money is spent on. >They start by looking at multipliers for government consumption... In developed countries, they find that the long-run multiplier is 0.66. but then >However, government investment—things like infrastructure building—results in higher multipliers. Here, the long-run multiplier was 1.5 for developed countries So that shows that the "what" matters. Here's the "when": >They examined several European countries and showed that fiscal multipliers are substantially higher than previously assumed. Previous IMF studies had assumed multipliers of roughly 0.5. In other words, a €1 injection of government money into the economy would only have a net benefit of 50 centimes. By contrast, Messrs Blanchard and Leigh found that the actual multipliers in the early years of the crisis were “substantially above 1”. That being based on a 2013 study by the IMF, later than the 2011 study quoted on Wikipedia. http://www.economist.com/blogs/freeexchange/2013/08/fiscal-policy-developing-countries http://www.economist.com/blogs/freeexchange/2013/08/fiscal-p...

freehunter 12y ago

It really depends on when the money is spent and what the money is spent on. >They start by looking at multipliers for government consumption... In developed countries, they find that the long-run multiplier is 0.66. but then >However, government investment—things like infrastructure building—results in higher multipliers. Here, the long-run multiplier was 1.5 for developed countries So that shows that the "what" matters. Here's the "when": >They examined several European countries and showed that fiscal multipliers are substantially higher than previously assumed. Previous IMF studies had assumed multipliers of roughly 0.5. In other words, a €1 injection of government money into the economy would only have a net benefit of 50 centimes. By contrast, Messrs Blanchard and Leigh found that the actual multipliers in the early years of the crisis were “substantially above 1”. That being based on a 2013 study by the IMF, later than the 2011 study quoted on Wikipedia. http://www.economist.com/blogs/freeexchange/2013/08/fiscal-policy-developing-countries http://www.economist.com/blogs/freeexchange/2013/08/fiscal-p...