Tuesday, November 2, 2010
Monday, October 11, 2010
Saltwater light vs. saltwater heavy vs. freshwater heavy
Greg Mankiw steps us through:
WEDNESDAY, JANUARY 14, 2009
Fama on Fiscal Stimulus
Eugene Fama is a stimulus skeptic.
In fact, he is even more skeptical than I am. I am willing to concede that many Keynesian effects work in the short run, although I prefer monetary policy to fiscal policy and, within fiscal policy, I prefer the use of tax instruments to government spending as a tool for short-run demand management. By contrast, I read Fama's article as a largely wholesale endorsement of the classical model with complete crowding out.
Update: Brad DeLong takes me to task for not taking Fama to task:
In fact, he is even more skeptical than I am. I am willing to concede that many Keynesian effects work in the short run, although I prefer monetary policy to fiscal policy and, within fiscal policy, I prefer the use of tax instruments to government spending as a tool for short-run demand management. By contrast, I read Fama's article as a largely wholesale endorsement of the classical model with complete crowding out.
Update: Brad DeLong takes me to task for not taking Fama to task:
No, Greg. It's not an endorsement of any model. It's just a mistake. Fama mistakes the NIPA savings-investment accounting identity for a behavioral relationship that constrains the behavior of investment: when the government deficit goes up, Fama says, private investment must go down by the same amount.When the government deficit goes up, private savings could go up by more--and private investment could increase. Private savings could go up by less--and private investment would fall by less than the rise in the government deficit. Private savings could remain unchanged. Or private savings could fall. Determining which of these is most likely to happen would require a model of the economy of some sort--and Fama does not have one: all he has is an accounting identity that he does not understand.
Sunday, October 3, 2010
Down is up and so forth
Why does the IMF claim that contractionary fiscal policy is expansionary? Just a little evidence? Ah ... and how is the data constructed?
The Economist helpfully provides a guide for travellers to this very real universe of "important people."
Does fiscal austerity boost short-term growth? A new IMF paper thinks not
Sep 30th 2010
MOST people, among them the tens of thousands of workers who rallied in Brussels on September 29th, believe that fiscal austerity leads to a shrinking economy, at least in the short run. Jean-Claude Trichet, president of the European Central Bank, disagrees. In June he said that “the idea that austerity measures could trigger stagnation is incorrect.” Arguing that a credible fiscal-consolidation plan would restore confidence, he said: “I firmly believe that in the current circumstances, confidence-inspiring policies will foster and not hamper economic recovery.”
With rich-world budget deficits averaging about 9% of GDP in 2009—up from only 1% in 2007—and their average public-debt-to-GDP ratio expected to hit 100% by the end of this year, austerity is a bullet that few rich countries will be able to dodge. But is it right to claim, as Mr Trichet and other devotees of “expansionary fiscal consolidations” do, that belt-tightening can actually aid growth in the short term? The intellectual backing for these claims comes from a study by two Harvard economists, Alberto Alesina and Silvia Ardagna, which studied past fiscal adjustments in rich countries*. They found that, more often than not, fiscal adjustments that relied on spending cuts boosted growth, even in the very short run. But a new study by economists at the IMF reckons that the Harvard study was seriously flawed**. ...
The Economist helpfully provides a guide for travellers to this very real universe of "important people."
Does fiscal austerity boost short-term growth? A new IMF paper thinks not
Sep 30th 2010
MOST people, among them the tens of thousands of workers who rallied in Brussels on September 29th, believe that fiscal austerity leads to a shrinking economy, at least in the short run. Jean-Claude Trichet, president of the European Central Bank, disagrees. In June he said that “the idea that austerity measures could trigger stagnation is incorrect.” Arguing that a credible fiscal-consolidation plan would restore confidence, he said: “I firmly believe that in the current circumstances, confidence-inspiring policies will foster and not hamper economic recovery.”
With rich-world budget deficits averaging about 9% of GDP in 2009—up from only 1% in 2007—and their average public-debt-to-GDP ratio expected to hit 100% by the end of this year, austerity is a bullet that few rich countries will be able to dodge. But is it right to claim, as Mr Trichet and other devotees of “expansionary fiscal consolidations” do, that belt-tightening can actually aid growth in the short term? The intellectual backing for these claims comes from a study by two Harvard economists, Alberto Alesina and Silvia Ardagna, which studied past fiscal adjustments in rich countries*. They found that, more often than not, fiscal adjustments that relied on spending cuts boosted growth, even in the very short run. But a new study by economists at the IMF reckons that the Harvard study was seriously flawed**. ...
Friday, September 10, 2010
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