Fiscal multiplier/Tutorials: Difference between revisions

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Assessing the current size of fiscal multipliers
 
is complex, in that the value taken depends on its composition, its permanent nature, and on the economic
<ref>[http://faculty.washington.edu/ezivot/econ584/notes/svar%20survey.pdf Jan Gottschalk: ''An Introduction into the SVAR Methodology: Identification, Interpretation
environment at large. The large majority of estimates of first-year spending multipliers in normal times are
and Limitations of SVAR models, KielWorking Paper No. 1072, August 2001]</ref>
located in the range of 0.4 to 1.2. The values are lower – quite often below 0.7 - for tax multipliers. Therefore, if
 
the composition of observed consolidation is taken as a guide, multipliers are expected in general to be lower
 
than the highest estimates: using observed changes in revenues and expenditures to GDP ratios as proxies for the
<ref>[http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Recently_published_articles/PCH2010.pdf Paul De Grauwe ''The scientific foundation of dynamic stochastic general equilibrium (DSGE) models'', Public Choice, 13 July 2010]</ref>
composition of the adjustment shows that in 2012 consolidation is equally shared in revenue and expenditure
 
measures. In the same direction also go the indications that comes from the mostly permanent nature of the
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consolidation in the EU.
However, it is likely that in the current juncture impact multipliers are higher than normal because 1)
the literature stresses that in situations of crisis, and of financial crisis in particular, with many agents
constrained in the financial markets, multipliers are larger than average; and 2) monetary policy is unable or
unwilling to offset the deflationary effect of a consolidation
<ref>[http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp460_en.pdf Jocelyn Boussard, Francisco de Castro and Matteo Salto: ''Fiscal Multipliers and Public Debt Dynamics in Consolidations'', European Commission, July 2012]</ref>.
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Revision as of 07:37, 14 November 2012

This article is developing and not approved.
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https://en.citizendium.org/wiki/index.php?title=Fiscal_multiplier/Tutorials&printable=yes
Tutorials relating to the topic of Fiscal multiplier.


Christine Romer has argued that that it is "incredibly hard" to estimate the value of a multiplier because fiscal actions are often taken in response to other things happening in the economy, and separating the impact of those other factors from the impact of fiscal change very difficult. Failure to do so can result in omitted-variable bias resulting in an underestimate of the multiplier - an error that Ms Romer believes to be common. [1]


  1. ↑ Christina D. Romer: What do we know about the effects of fiscal policy?, Lecture at Hamilton College, November 7, 2011
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