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Thursday, September 02, 2010

Measuring the Output Responses to Fiscal Policy

Using a model that allows multipliers to vary over the business cycle, Alan Auerbach and  Yuriy Gorodnichenko find that the fiscal stimulus multiplier is greater than one in recessions:

The return from a fiscal stimulus – the fiscal multiplier – remains one of the most controversial topics in economics today. This column considers the influence of expectations, of variation in recessions and expansions, and of different components of government spending. It finds that the size of the multiplier varies considerably over the business cycle: between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.

    Posted by on Thursday, September 2, 2010 at 05:43 PM in Economics, Fiscal Policy | Permalink  Comments (15)


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