IMF: World Economic Outlook; Fiscal Monitor

New WEO is here. Box 1.1 “Are We Underestimating Short-Term Fiscal Multipliers?” by Blanchard and Leigh is attracting a lot of attention.  Of local interest is that it turns out that Ireland is not a country for which the IMF was too optimistic about growth (for the time period studied here) – its Spring 2010 growth forecast for the 2010-2011 period was pretty accurate (for GDP). 

New FM is here.  The theme of the FM is “Taking Stock: A Progress Report on Fiscal Adjustment”. Box 8 is “Ireland: The Impact of Crisis and Fiscal Policies on Inequality”, which finds the adjustment to be progressive in cumulative terms here.  It also notes that “Ireland’s 2010 at-risk-of-poverty gap” is the second lowest in Europe.

9 replies on “IMF: World Economic Outlook; Fiscal Monitor”

Ann Cahill’s breaking newz piece in The Irish Examiner here – includes a link to the relevant 3 pages on Irland and those ‘dodgy’ multipliers.

IMF: We got effect of austerity wrong
By Ann Cahill, Europe Correspondent

Tuesday, October 09, 2012

The IMF has admitted it completely underestimated the effects of austerity on the Irish economy and believed the tax increases and spending cuts would not have cost so many jobs.

The revelation comes in three pages of academic analysis tucked away in the body’s annual report being released in Tokyo today where the IMF and the World Bank are holding their annual congress.

The report says the IMF believed that for every €100 of austerity through higher taxes and spending cuts, the effect on economic growth and unemployment would be the equivalent of €50.

But in reality the effect has been between double and three times that — stripping the economy of €90 to €150 for every €100 taken out in budgets agreed with the troika.

“But in reality the effect has been between double and three times that ”

What precision. To whose benefit was the error?

Interesting to see that Ireland has seen one of the largest falls in income inequality in the developed world over the past 20 years and that there have been positive gains over the past five years in Ireland’s at-risk-poverty rate and relative at-risk-of-poverty gap. See fiscal monitor pages 48-51 for charts.


“The errors in forecasting the unemployment rate are described as “large and significant”.

The economists also studied the GDP forecast errors of four groups. They found that the IMF had the highest level of error followed by the European Commission, the Economist Intelligence Unit (privately owned), and the OECD.”

So two components of the “Troika” don’t know what they are doing.

Amazing …admit you got it wrong and continue with the wrong medicine in the hope that the patient won’t die too quickly.

Used to describe the Irish economy, is the IMF phrase “bumpy recovery” a technical term in economics?

@Joseph Ryan

“To whose benefit was the error?”

I think it was simply destroyed. You might as well have gone to the car park in Tescos with a huge pile of taxpayers money and just burned it.

I doubt that too many people involved in getting this all wrong will lose much sleep over it. It never seems to impact those who are dishing it out.

Pierre Leconte an Austrian School French economist.
His views on Bernanke’s policies are interesting to say the least.
First the original link, Chrome would be useful.
Second Google translate, links do not always work to Google translate.

Last a cut and paste, translated.

The re-election of Obama to the U.S. presidency, alas probable, meaning keeping Bernanke to head the Fed, would cause the collapse of the U.S. dollar Pierre Leconte

The Obama administration and the Federal Reserve led by Bernanke have already made ​​and continue to make every conceivable manipulations to try to retain power in both makeup statistics (unemployment, inflation, money supply, GDP, etc …) that intervening in every way possible in the economic, financial and monetary they intend to run instead of allowing economic actors the freedom they need to undertake. Unfortunately, it is likely that they will manage to keep that power, eliminating the “ticket” Romney-Ryan, the delay from the U.S. public will be difficult to catch. Which would cause the collapse of the U.S. dollar they seek to highlight because of its structural inflationary effects, which they expect the double miracle of debt reduction and improving U.S. competitiveness U.S. foreign then that print ever more counterfeit currency impoverishes all economic actors.

“Resorting to inflation to overcome temporary difficulties equivalent to burning the furniture to keep warm” in the words of the great Ludwig von Mises.

The other problem, regardless of collective impoverishment of Americans that result is that the U.S. dollar is still the world’s reserve currency, its massive devaluation will affect all other paper currencies that are all entries in a fatal process of destruction because governments that issue these follow suit U.S. to devalue them as to maximize their monetary units (as has already begun with the generalization of Quantitative Easings and “competitive devaluations” everywhere). This policy of establishing a “currency war” is ultimately suicidal for “overall balance” macro both USA and in the rest of the world, as international trade and businesses who need stability exchange rate to grow, and its effects will change the whole panorama of financial assets, particularly precious metals.

Look at the first chart below of gold expressed in U.S. dollars per ounce and you will understand why the break up in the last resistance (very high so difficult to overcome a first time) lying to 1790-1800 pave the way for an explosion in the price of progressive leadership from 2400 to 2600 in 2012 – 2013. The upside of silver metal is even more important with a possible target of nearly 65-70 dollars an ounce in case of breakage to increase its resistance to 37.50. Such an increase of two main precious metals, which would mean the fall of the purchasing power of the U.S. dollar and other first major paper currencies at the same time or subsequently, would clearly result in the gradual reintegration of said metals in the international monetary system in place of the bonds which are currently most of central bank reserves, particularly Western, so a global bond market crash (via the rise in interest rates in the long term central banks Unlike short-term rates can not easily handle).

The other two graphs below the U.S. dollar index and U.S. Treasury Bonds show that they have much room to fall (to 71 for the first and for the second to 124) which would, however, still continue to share their progression (since, after all, better to buy paper issued by those companies that are best managed by States which are almost all bankrupt real or virtual).


Thursday, October 11, 2012
IMF Suddenly Decides It Might be OK to Loosen Austerity Tourniquets Now that Gangrene is Setting In

While deathbed conversions might earn you a spot in heaven in some religions, they don’t carry you very far here on Planet Earth.

Christine Lagrade has taken too small a step in the right direction far too late to do much good. At the current IMF annual meeting in Tokyo, she’s made dramatic-sounding pronouncements consistent with the rather embarrassing admission in the Fund’s latest quarterly report that austerity is working less well than voodoo (I’ve never tried it myself, but some correspondents give it high marks).

As we stressed, the IMF has admitted what observers have already reported on, at some length, by looking at economic outcomes in Latvia, Greece, Ireland, Portugal, and Spain: its tender ministrations are leaving its patient worse off. Cuts in fiscal deficits (ex in special circumstances, such as being able to trash your currency at a time when your trade partners have good levels of growth) lead to even greater falls in GDP levels, resulting in higher debt to GDP ratios, the exact opposite of what this exercise was intended to accomplish. The bureaucratese is “fiscal multipliers.” When fiscal multipliers are greater than 1 deficit cutting makes matters worse. The IMF’s ‘fessing up to a problem without releasing country by country data suggests it is showing fiscal multiplies greater than 1 in pretty much all of the countries now wearing the austerity hairshirt.

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