The longer-form working paper version of the IMF study by Blanchard and Leigh is now available here, which includes new material that responds to various criticisms of the original box in the WEO.
3 replies on “Growth Forecast Errors and Fiscal Multipliers”
“However, our results need to be interpreted with care. As suggested by both theoretical considerations and the evidence in this and other empirical papers, there is no single multiplier for all times and all countries. Multipliers can be higher or lower across time and across economies. In some cases, confidence effects may partly offset direct effects. As economies recover, and economies exit the liquidity trap, multipliers are likely to return to their precrisis levels. Nevertheless, it seems safe for the time being, when thinking about
fiscal consolidation, to assume higher multipliers than before the crisis.”
Particulars, however qualified, trump the universal in this austere case.
As a once-famous personage might have remarked; “Its a bit of dis, a bit of dat and a bit of t’other”. Indeed!
It reminds me of the efforts made by some scientists who attempt to ‘sell’ Cold Fusion to scientific and engineering illiterates (and any scientist gullible enough to believe their guff).
The problemo is that the models work in theory, but not in practice. Hence the Procrustean attempts to make reality correspond with the theory. Lots of folk end up in a pretty bad shape.
‘spose a bit of the untaxable t’other an a cup of tea is all we might have to look forward to …. !
3 replies on “Growth Forecast Errors and Fiscal Multipliers”
“However, our results need to be interpreted with care. As suggested by both theoretical considerations and the evidence in this and other empirical papers, there is no single multiplier for all times and all countries. Multipliers can be higher or lower across time and across economies. In some cases, confidence effects may partly offset direct effects. As economies recover, and economies exit the liquidity trap, multipliers are likely to return to their precrisis levels. Nevertheless, it seems safe for the time being, when thinking about
fiscal consolidation, to assume higher multipliers than before the crisis.”
Particulars, however qualified, trump the universal in this austere case.
As a once-famous personage might have remarked; “Its a bit of dis, a bit of dat and a bit of t’other”. Indeed!
It reminds me of the efforts made by some scientists who attempt to ‘sell’ Cold Fusion to scientific and engineering illiterates (and any scientist gullible enough to believe their guff).
The problemo is that the models work in theory, but not in practice. Hence the Procrustean attempts to make reality correspond with the theory. Lots of folk end up in a pretty bad shape.
‘spose a bit of the untaxable t’other an a cup of tea is all we might have to look forward to …. !