December 31, 2009
Counterfactuals and the Stimulus, Again
And some lessons from the 1930's for the 2000's
John Taylor returns to the topic of how much impact the stimulus package has had on output. The heart of the argument is summarized by his extension of a graph presented in the NYT (and reproduced in this post).
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September 30, 2009
Multipliers, Reviewed
Mark Thoma has assembled a set of useful discussions of multipliers. Econbrowser has added a handy new category "multipliers", that compiles entries on the topic. In addition, Ethan Ilzetzki, Enrique G. Mendoza and Carlos A. Vegh provide a very useful cross-country (including emerging market economy) survey here and here [pdf].
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September 11, 2009
The ARRA's Progress
...and a Rejoinder to Posner.
The CEA Analysis of ARRA's Impact
Yesterday, the Council of Economic Advisers released the first of its mandated reports on the impact of the ARRA on economic activity. Based upon a variety of approaches (VAR, multiplier based), it concludes:
"...our multiplier analysis and estimates from a wide range of private and public sector forecasters confirm the estimates from the statistical projection analysis. There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter.
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August 27, 2009
I Am Even More Confused Now...
By Richard Posner's math...On August 25th he wrote, regarding Dr. Romer's August 6 speech:
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August 21, 2009
Richard Posner Misunderstands Numbers, Yet Again
Richard Posner displays his failure to understand the difference between expenditures (reported on Recovery.com) and tax rebates (not reported online, but have to be estimated).
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Richard Posner Misunderstands Numbers, Yet Again
Richard Posner displays his failure to understand the difference between expenditures (reported on Recovery.com) and tax rebates (not reported online, but have to be estimated).
Continue reading "Richard Posner Misunderstands Numbers, Yet Again"
Posted by Menzie Chinn at 03:59 PM permalink | Comments (20)
August 20, 2009
Basic Math for the Math Challenged
Since Richard Posner has decided to exhibit his math skills again, I thought it useful to work through some math to see how one can obtain back-of-the-envelope estimates for the stimulus package. I'll use Mr. Posner's numbers to illustrate.
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August 19, 2009
Honesty, Dishonesty and Competence: Comments on Posner's Critique
Richard Posner has a critique of public intellectuals who work in the public sphere (with special reference to Christina Romer), either in government service, or in journalistic fora. Mark Thoma and Brad Delong have already made clear the (many) points at which Mr. Posner has gone astray. Parenthetically, I'll add that I wonder about the analytical abilities of anybody who lumps Philip Glass (!) and Elliott Carter together into the highbrow music category (see page 18 in his tome Public Intellectuals: A Study of Decline (1991)). More substantively, I have a few of additional observations, some of which are amplifications of Brad Delong's points.
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August 03, 2009
Multipliers, under Differing Monetary Regimes
Here's another installment in a series attempting to move the discussion from "my estimate vs. your estimate" (or "prior", as the case may be) [1] [2] [3] [4] [5] [6] to something more constructive (and hopefully more nuanced). From the conclusion to "Expectations and Fiscal Stimulus" by Troy Davig and Eric M. Leeper:
This paper has embedded estimated Markov-switching rules for U.S. monetary and fiscal policy into an otherwise conventional calibrated DSGE model with nominal rigidities to deliver some quantitative predictions of the impacts of government spending increases. When monetary and fiscal policy regimes vary -- from active monetary/passive fiscal to passive monetary/active fiscal to doubly passive to doubly active -- government spending multipliers can vary widely. An increase in government spending of $1 in present value raises output by $0.80 in present value under [Active Money/Passive Fiscal] AM/PF, while it raises output by as much as $1.80 in present value when monetary policy is passive. In our simple model, this translates into a decrease in consumption of $0.20 in present value under AM/PF, but an increase in consumption of about $0.80 in present value under passive monetary policy.
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July 26, 2009
Are Unemployment Statistics Meaningless? Are Spillover Effects Zero?
Casey Mulligan rebuts my post asserting slack in the economy by posing the scenario "Construction Workers Teaching Kindergarten" (Note: Mulligan's blog is down; here is an alternative link currently working - 8/2/09). He writes:
Econbrowser now claims* that the stimulus bill can be effective, because unemployment rates are high (whatever that means) in health care and education. Let's take a look at employment changes Dec 2007 - June 2009 (millions) by industry:
Total nonfarm payrolls: -6.5
Construction: -1.3
Manufacturering: -1.9
Education and Health: +0.7
How exactly is fiscal policy going to create 3.5 million jobs by primarily hiring people in education and health? I see only two scenarios, both absurd and/or dishonest:
He argues these two scenarios are: (1) "The construction workers become kindergarten teachers" or (2) "The people in construction and manufacturing stay unemployed."
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July 20, 2009
The Failure of Macroeconomics?
This must be the period of soul searching, with the Economist engaging upon multi-article exegeses on where mainstream macro went wrong [1], [2], [3]. Alternatively, I think this is a happy time for some economists outside the (perceived) mainstream, who can now chortle "I told you so". One recent example is by Mario Rizzo.
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July 15, 2009
Casey Mulligan on the Stimulus: Stock-Flow Mismatch, Sectoral Stimulus Mismatch, and Construction Crowding Out
In today's Economix post, Casey Mulligan argues that the greater than predicted unemployment numbers should not be ascribed to the negative effect of the stimulus, but rather to bigger than anticipated negative shocks.
We cannot blame the Obama administration for failing to predict June's 9.5 percent unemployment rate. That result just shows the size of the shocks hitting the economy: Even the best forecasters can miss the unemployment rate by almost two percentage points, even when forecasting fewer than six months ahead.
Posted by Menzie Chinn at 09:40 PM permalink | Comments (12)
July 14, 2009
A New Survey of Multipliers
For people who want an impartial survey of multipliers, see Patrick Van Brusselen, "Fiscal Stabilisation Plans and the Outlook for the World Economy". It's a useful antidote to the blogposts that cherry-pick multipliers from a given model to make a given point. The survey ranges over US, euro-area, and Japan; and structural macroeconometric models, DSGEs, and VARs.
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July 11, 2009
Ed Lazear on the Stimulus Package
From the WSJ editorial page:
Only a small share of the spending will occur in 2009, even though Keynesians would argue that stimulus spending should be frontloaded to kick-start growth. The Congressional Budget Office estimates that the largest share of the spending will occur in 2010, with the amount in 2011 being slightly larger than in 2009. Again, the timing exacerbates the problem: It will be tough to cut back on spending written into budgets as far out as 2011.
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July 02, 2009
Back to the Stimulus Debate: W, Timing, the States, and Baselines
A "W" Recession?
Martin Feldstein has recently raised the possibility that we might experience a relapse into recession (a beautiful symmetrical W), with the next dip in 2010. In my view, this means (1) we should have opted for a bigger and better composed stimulus package, and (2) the timing of expenditures in the stimulus package might not be as problematic as many commentators have indicated. From Bloomberg:
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June 05, 2009
Relevant and Irrelevant Criticisms of the Stimulus Package
Keith Hennessey critiques the stimulus package. Some points make sense, some points, well, I wonder. For instance, Hennessey argues the stimulus is not timely. As I've noted before, it's not timely only if you think this will be a relatively short recession, characterized by a rapidly dissipating negative output gap. [0] [1] [2].
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April 20, 2009
The Allocation of Stimulus Funds
From Daniel Wilson, "Are Fiscal Stimulus Funds Going to the 'Right' States?" at the SF Fed (h/t Torsten Slok at DB):
...While it is too early to tell whether the overall stimulus package will have its intended effects, this review suggests that, by and large, the distribution of federal stimulus funds is indeed tilted toward those states most likely to spend the funds quickly and effectively.
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March 23, 2009
The Stimulus Package Considered against a Deteriorating Macro Backdrop
Here are the latest CBO forecasts of the output gap and unemployment rate, as well as counterfactual gap and rate that would have taken place in the absence of the stimulus package.
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March 09, 2009
The Great Multiplier Debate, New Keynesian Edition
Greg Mankiw cites a study by Cogan, Cwik, Taylor, and Wieland to buttress his arguments that fiscal multipliers are small, especially when considering New Keynesian models. He also provides a startling graphic showing the dynamic multipliers from Romer-Bernstein versus the Taylor (1993) model, incorporating model consistent expectations; this graphic motivates Wieland et al. to remark:
We first show that the assumptions made by Romer and Bernstein about monetary policy -- essentially an interest rate peg for the Federal Reserve -- are highly questionable according to new Keynesian models. We therefore modify that assumption and look at the impacts of a permanent increase in government purchases of goods and services in the alternative model. According to the alternative model the impacts are much smaller than those reported by Romer and Bernstein.
Cogan et al. use a New Keynesian dynamic stochastic general equilibrium (DSGE) model, specifically the Smets-Wouter model (Working Paper version of AER paper here).
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February 16, 2009
Recap: The Stimulus Bill and the Macro Impact
CBO has now released an analysis of spend rates of the final stimulus bill to be signed by the President on Tuesday. While the proportions of expenditures and tax cuts are changed, the time profile is little changed from the original House bill -- wherein most of the stimulus takes place in the next 19.5 months.
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February 04, 2009
Why Can't We All Just Get Along? The Great Multiplier Debate
I've been thinking about why the numbers that are typically bandied about in policy circles (at least that I'm familiar with) have so little impact on the overall general and blogosphere debate (see some examples here and here). I think it's part ideological, and part methodological. I can't do much about the first (e.g., tax cuts good, spending on goods and services bad -- unless on defense; or alternatively "let the market adjust no matter how long it takes"). But at least I can lay out why reasons why there is disagreement on the size of the multipliers.
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February 02, 2009
Budget Surplus? Tax Cut! Budget Deficit? Tax Cut! High Energy Prices? Tax Cut! Deep Recession? More Tax Cuts!
I see a pattern. For some people, the answer to every question is...a tax cut! From WSJ on 29 January:
There's a serious debate in this country as to how best to end the recession. The average recession will last five to 11 months; the average recovery will last six years. Recessions will end on their own if they're left alone. What can make the recession worse is the wrong kind of government intervention.
Posted by Menzie Chinn at 09:45 PM permalink | Comments (85)
January 28, 2009
Multipliers, again
From CBO Director Doug Elmendorf's testimony yesterday, some numbers relevant to the ongoing debate over fiscal policy efficacy [1] [2]:
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January 26, 2009
Five Reasons Why Fiscal Policy Might Be Completely Ineffective: A Textbook Exposition
It's been frustrating to me that so much virtual ink has been spilled about why the fiscal package will or will not be effective, with so little clarity. Lots and lots of words are being thrown around, [1] [2] when a lot of the arguments can be summarized pretty easily in terms of four cases, and hence four graphs (I won't deal with the fifth, in detail). There are numerous excellent critiques; here in the interest of specificity, the exposition will be fairly dense.
1. With prices predetermined, the interest sensitivity of money demand is zero, or the income sensitivity of money demand is infinite.
2. With prices predetermined, the interest sensitivity of investment or the sensitivity of net exports to interest rates are infinite.
3. With prices predetermined, the sensitivity of money demand to wealth is high.
4. Output is at full employment levels.
5. Neo-Ricardian equivalence, as put forward by Barro, holds.
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January 17, 2009
One of My Favorite Papers on Multipliers
Germane to some of the ongoing debates over fiscal policy effectiveness [1] [2]:
Fiscal policy multipliers are central to Keynesian macroeconomics. In this paper I explore a possible microeconomic foundation for one fundamental theory of income determination, the 'Keynesian cross'. My model deviates from a Walrasian equilibrium model only by the assumption of imperfect competition in the goods market. I show that textbook fiscal policy multipliers arise as a limiting case.
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January 10, 2009
Estimated Impact of "American Recovery and Reinvestment Plan"
By way of Paul Krugman, here is the estimated impact on employment provided by C. Romer and J. Bernstein.
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October 27, 2008
Pocketful of Multipliers (II): Options for Stimulus Packages
As the debate over the nature and size of a stimulus package wends its way through the Congress [0], [1], [2], I thought it would be useful to bring numbers into the debate, especially as we are considering fiscal stimulus in a time when the Bush Administration has constrained, by dint of previous profligacy, our options. In particular, I want to return to the issue of multipliers, discussed in nearly a year ago. Here, I want to provide a little more specificity, regarding the impact depending upon the type of outlays.
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January 18, 2008
More Thoughts on Fiscal Stimulus: Business Incentives
What does the literature say about the efficacy of incentives for investment?
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November 27, 2007
A Pocketful of Multipliers
...or putting some bounds on the magnitudes of effects.
knzn at Economics and... had an interesting post the other day on "The Indirect Effects of Export Demand", which seems particularly germane to the current situation. After all, net export demand is one of the few bright spots in the US economy.
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