Saturday, September 19, 2009
Tuesday, September 8, 2009
Will the fiscal stimulus work?
As policy makers gear up to respond to the crisis, there is an incessant debate over what will work and what will not. One such recurring debate is about the efficacy of the fiscal stimulus. In what follows I list some interesting arguments from both sides of the debate.
Against the Fiscal Stimulus:
John Taylor has this good pictorial depiction of what is the effect of the rebate checks on consumption expenditure and it does seem that the fiscal stimulus did not work. A while back Robert Barro in this article argued that the best estimate of government expenditure multiplier is in the range of 0.8 and hence any expectation that the fiscal stimulus will work is misplaced. David Andolfatto has a good piece based on a IMF paper on fiscal multipliers.
For Fiscal Stimulus:
Kaushik Basu has an interesting take on how the crisis spread and what implications it holds for the policy response. His model seems to support a large fiscal stimulus at least of a temporary nature.
Arguing for fiscal stimulus based on Keynes's ideas is Paul Krugman. Interested readers are refereed to his writings on his blog. He also recently wrote a long piece criticizing the state of macroeconomics in the New York Times magazine. It is an interesting critique of the state of macroeconomic theory in the context of the current crisis. I am sure any response to his criticisms will constitute an even better food for thought.
Against the Fiscal Stimulus:
John Taylor has this good pictorial depiction of what is the effect of the rebate checks on consumption expenditure and it does seem that the fiscal stimulus did not work. A while back Robert Barro in this article argued that the best estimate of government expenditure multiplier is in the range of 0.8 and hence any expectation that the fiscal stimulus will work is misplaced. David Andolfatto has a good piece based on a IMF paper on fiscal multipliers.
For Fiscal Stimulus:
Kaushik Basu has an interesting take on how the crisis spread and what implications it holds for the policy response. His model seems to support a large fiscal stimulus at least of a temporary nature.
Arguing for fiscal stimulus based on Keynes's ideas is Paul Krugman. Interested readers are refereed to his writings on his blog. He also recently wrote a long piece criticizing the state of macroeconomics in the New York Times magazine. It is an interesting critique of the state of macroeconomic theory in the context of the current crisis. I am sure any response to his criticisms will constitute an even better food for thought.
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