tag:blogger.com,1999:blog-2546602206734889307.post4758276937646690069..comments2024-03-19T09:54:37.187+00:00Comments on mainly macro: Faith in multipliersMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger40125tag:blogger.com,1999:blog-2546602206734889307.post-26988898095223757022016-07-11T22:38:27.503+00:002016-07-11T22:38:27.503+00:00All discussions of multipliers should define (a) t...All discussions of multipliers should define (a) the baseline scenario in absence of stimulus and (b) the time over which the multiplier is calculated.<br /><br />I wrote a piece on fiscal multipliers and the assumptions behind them. It also includes a method to visualize circular flow of income. My multiplier explanation works for an arbitrary number of periods. <br /><br />As hyperlinks are not permitted in the comments, click on my name to find my blog post.Jan Musschoothttp://blog.janmusschoot.be/2016/07/07/helicopter-money-part-iii-economic-stimulus/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-88816196847993958382015-06-09T07:45:58.573+00:002015-06-09T07:45:58.573+00:00I am puzzled by the search for A fiscal multiplier...I am puzzled by the search for A fiscal multiplier. Surely, the fiscal multiplier will depend on how the fiscal impulse is financed (unless this is controlled for in some other way). I can see how, in the absence of full Ricardian equivalence, a fiscal impulse financed by external asset (typically debt) sales would stimulate GDP. But fiscal stimulus financed by internal bond sales or taxes seems to me to be simply putting back in with one hand what is taken out by the other. And money financed fiscal stimulus is different again, more like monetary policy.Tim Youngnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2649959464092650502015-06-04T13:17:10.176+00:002015-06-04T13:17:10.176+00:00Mainly Macro4 June 2015 at 04:39
Where is your &q...Mainly Macro4 June 2015 at 04:39<br /><br />Where is your "solid empirical foundation"? There are a number of empirical studies with contradictory results. If you then choose the ones that suit you, that is an act of faith (isn't that called "confirmation bias"?). Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-64800549646416521752015-06-04T11:39:29.152+00:002015-06-04T11:39:29.152+00:00So you would rather quote Paul miss-characterizing...So you would rather quote Paul miss-characterizing me than what I originally wrote - that tells me a lot! Here is what I actually said:<br /><br />"My priors come from thinking about models, or perhaps more accurately mechanisms, that have a solid empirical foundation." Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-42910955517941770732015-06-04T10:27:56.736+00:002015-06-04T10:27:56.736+00:00Mainly Macro2 June 2015 at 07:38
rob sol2 June 20...Mainly Macro2 June 2015 at 07:38<br /><br />rob sol2 June 2015 at 13:45<br /><br />Allow me to quote Paul Krugman<br />http://krugman.blogs.nytimes.com/2015/06/03/multipliers-and-reality/?_r=0<br /><br />"Wren-Lewis argues for a multiplier of around one, based not on empirical evidence but on a priori reasoning. "<br /><br />That is what I call an act of faith.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-22822153597290447182015-06-04T10:09:17.227+00:002015-06-04T10:09:17.227+00:00Your 'spare capacity' argument may be '...Your 'spare capacity' argument may be 'very elementary' but does not tally with what occurs in real life. Also, as I said, there is always spare capacity yet inflation exists. Have we forgotten 'stagflation' already?<br />Let's issue a more currency: <br />Everyone can add a zero (using a pen) to any UK banknote that comes into their possession.<br />£5 becomes £50. <br />£10 becomes £100.<br />etc.<br />Do we expect price inflation as a result, or is that prevented by 'spare capacity'?StuartPhttps://www.blogger.com/profile/13748038209546648459noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15015869998722631892015-06-03T23:32:06.129+00:002015-06-03T23:32:06.129+00:00Shouldn't we pay some attention to whether the...Shouldn't we pay some attention to whether the increase (say) in government spending displaces future government spending? <br /><br />Case 1: Spending 100,000,000 pounds on a yacht to celebrate some royal jubilee. If you decide not to, the jubilee will come and go, and there is no expectation that you will buy the yacht later.<br /><br />Case 2: Spending 100,000,000 pounds on fixing bridges that will need to be fixed at some point, because otherwise they'll fall down. <br /><br />Obviously this question has a theoretical and an empirical component, so I will direct is also to Robert. Possibly the empirical answer is pretty simple: when deciding what to spend now, no one considers future taxes to pay for the Queen's yacht, or future taxes they won't have to pay because the bridges are already fixed. But actually, is there empirical research along these lines? The theoretical question is more vexing because in principle expected future taxes will diminish current consumption (at least so say the fresh water folks) in one case but not the other, but this never seems to enter the discussion, not just here, but in almost all the discussion of fiscal policy at the ZLB that I have seen.Anonymoushttps://www.blogger.com/profile/15016147020973120305noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-45243770719393324462015-06-03T18:14:10.598+00:002015-06-03T18:14:10.598+00:00Krugman thinks that net/net the studies show a mul...Krugman thinks that net/net the studies show a multiplier (I guess for the US) of about 1.5. I am not in a position to evaluate the evidence.Anonymoushttps://www.blogger.com/profile/00040408582097904554noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59400677932021009012015-06-03T14:33:03.673+00:002015-06-03T14:33:03.673+00:00It does seem that the data will always be insuffic...It does seem that the data will always be insufficient to make a firm conclusion on this issue.<br /><br />The part I don't understand is that this analysis assumes the starting level of Government spending (as a share of 'potential' GDP) to be 'correct', and then asks what impact do cyclical fluctuations in fiscal policy have on non government investment and consumption.<br /><br />But it seems to me we could be starting from three different places.<br />1) Government is too small, and the economy is below potential because government spending is too low and household consumption and investment are fine<br />2) Government is the right size and the economy is indeed below potential due to one or both of household consumption or investment being to low.<br />3) both G and C&I are too low<br /><br />Lets say you study three historical slumps and they happen to represent one each of these three scenarios, why wouldn't you expect a different multiplier in each slump? never mind a different multiplier at different points during the slump.<br /><br />In any case, If Government spending can be too low or too high given some potential gdp, wouldn't that very fact answer the question? Government spending isn't a function of monetary policy - low rates don't call forth more activity even when Larry Summers thinks low rates do justify more government spending on infrastructure.<br />So if the slump in the economy is due to C&I use monetary policy.<br />If its due to G being too low, use fiscal policy.<br />in which case, who cares what the multiplier is; or more likely you'd care about the multiplier of investment spending in one case, and of government spending in the other.<br /><br />I still would like some answer to the question what is the correct share of G as a percent of potential gdp. <br /><br />Danhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30780722649656668422015-06-03T08:24:19.292+00:002015-06-03T08:24:19.292+00:00Stuart P,
If there is significant spare capacity,...Stuart P,<br /><br />If there is significant spare capacity, i.e. unemployment, then “issuing more currency” will NOT BE inflationary: inflation arises when the ability of an economy to SUPPLY is exceeded by DEMAND.<br /><br />A very elementary point.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-77792941724913543262015-06-03T07:06:45.247+00:002015-06-03T07:06:45.247+00:00In my post I wrote that we could say more here, an...In my post I wrote that we could say more here, and it was issues like this that I had in mind. Anyone care to counter with emipirical evidence for smoothing?Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71622608149310087122015-06-03T06:59:19.369+00:002015-06-03T06:59:19.369+00:00
rob sol2 June 2015 at 13:45
How right you are! U...<br />rob sol2 June 2015 at 13:45<br /><br />How right you are! Unfortunately, there are contradictory empirical studies. That is probably why SWL prefers to argue from a priori assumptions.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11082097138833008042015-06-03T03:11:25.327+00:002015-06-03T03:11:25.327+00:00This is my usual comment. I think it might be we...This is my usual comment. I think it might be well worth ignoring. <br /><br />I get the impression that you consider the range of debate (the Overton window) to be from RBC to New Keynesian (with a bit of open-ness to aggregate modelling). The reason is that you consider only two possible beliefs about multipliers "will be somewhere around one rather than somewhere around zero" <br /><br />You don't consider the possibility that the government spending multiplier (for an economy at the ZLB) might be well above 1, as it would be in a paleo Keynesian IS-LM model.<br /><br /><br />"any impact on pre-tax income or taxes will be relatively small relative to a consumer’s lifetime income. "<br /><br />"My priors come from thinking about models, or perhaps more accurately mechanisms, that have a solid empirical foundation. "<br /><br />Also perhaps less accurately. You have a strong prior that consumption mainly depends on lifetime not current income. Importantly, you are discussing macro and multipliers so you have a strong prior that aggregate consumption mainly depends on permanent not current income.<br /><br />Yet you discuss strong empirical support. I ask whether there is any empirical support for your view. There is an over long timesome literature on testing the PIH, but there is not a similarly large literature on testing the hypothesis that only current and lagged income matters.<br /><br />At the very least, there should be evidence of Ricardian effects -- that if one considers consumption and disposable personal income, then high budget deficits should correspond to surprisingly low consumption. I know of no evidence of this (of course I am considering market economies without legal rationing so not WWII).<br /><br />Surprisingly high consumption should be followed by unusually rapid income growth. It is not for the USA.<br /><br />What is the empirical basis for your beliefs that there is something to the PIH, and that the economy can be understood by assuming that consumption of the non-liquidity constrained roughly fits the PIH ? <br /><br />I think consumption can be fit almost exactly using disposable personal income and the ratio of non-human wealth to disposable personal income. That non-human wealth includes a lot of common stock -- whose price is not correlated with future dividend growth (as noted by Robert Shiller).<br /><br />Investment is highly correlated with GDP growth. It may be that firms should think of the medium term when choosing investment. I note that a large part of the cyclical variation of NIPA investment is variation of net inventory investment. I do not see why firms should think of the medium long term when choosing inventory levels. Another very important component of investment is residential investment -- that is the type which responds noticeably to real interest rates.<br /><br />I think your priors come from thinking about models.Roberthttps://www.blogger.com/profile/14455788499385673507noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81060440113863289812015-06-02T20:45:02.889+00:002015-06-02T20:45:02.889+00:00I think that you need empirical studies to determi...I think that you need empirical studies to determine the multiplier and where it is located. All "science" needs to be tested against reality.Anonymoushttps://www.blogger.com/profile/00040408582097904554noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58913957174703634392015-06-02T17:16:03.726+00:002015-06-02T17:16:03.726+00:00That's household not hours hold, sorryThat's household not hours hold, sorry Hugo Evanshttps://www.blogger.com/profile/12705056750207255618noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70352641907806270062015-06-02T17:13:49.645+00:002015-06-02T17:13:49.645+00:00What do we think the GDP multiplier is for the iss...What do we think the GDP multiplier is for the issuance of non government financial liabilities? Put differently, how many units of private debt/bank credit must be issued to get x% growth. If we know that we can see which form of money issuance gives the biggest bang for buck at this time. Clue, with hours hold debt north of 170% GDP, you might not like the answer.Hugo Evanshttps://www.blogger.com/profile/12705056750207255618noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55542127775712670442015-06-02T16:54:56.314+00:002015-06-02T16:54:56.314+00:00I think it tries (rather hard) to take a step (or ...I think it tries (rather hard) to take a step (or two) in the right direction, but I think it fails.<br /><br />(I would feel less guilty about dumping on it if I thought I could do better.)<br /><br />Another thought: suppose we define "non-accommodative" as "following a Taylor-type rule with a coefficient on the lagged interest rate". Theory tells us that increases in G will cause a (temporary) increase in Y and inflation with a "non-accommodative" monetary policy like that. Because the increase in G causes an immediate jump in the natural rate of interest, but the central bank will only slowly raise the actual rate in response to the rise in Y and inflation. But their IRF shows basically a zero multiplier in that case.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-10189673724577148542015-06-02T15:25:35.601+00:002015-06-02T15:25:35.601+00:00@Magnus - apologies.
@anon - you need to employ r...@Magnus - apologies.<br /><br />@anon - you need to employ rather more logic and deduction in your analysis. You are assuming a few a priori beliefs of your own. Your phrase "... before raising public debt", as Magnus points out, implies that any government expenditure just replaces private sector activity, so the only change is an increase in debt - hence my comment about zero-sum games.<br /><br />But Simon is discussing the multiplier. Your implication is that the multiplier is zero (complete crowding out) or close to that. My argument would be that the multiplier is much higher than that. Any multiplier that is above zero takes us out of the zero-sum game. There *will* (by definition) be an increase in GDP, and an increase in taxation receipts. The important figure now is not the *total* debt, but the debt to GDP ratio. The question to ask now is whether the multiplier would be high enough for debt/GDP to drop. Which was all my initial comment was stating.<br /><br />Note that there is no faith here - this is just basic economics. Now if you want to make an argument that the multiplier is zero or close to zero, then go ahead.<br /><br />gastro georgenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43584284783879130242015-06-02T14:56:08.103+00:002015-06-02T14:56:08.103+00:00It strike me that in the IMF paper, they are tryin...It strike me that in the IMF paper, they are trying to calculate something very complex without many data points. I may be wrong.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-80490639226771765552015-06-02T14:44:45.545+00:002015-06-02T14:44:45.545+00:00I agree the study raises a lot of issues about how...I agree the study raises a lot of issues about how you capture the monetary policy response (hence my last para) but I hope you would agree that this is a step in the right direction.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-8363673346398156752015-06-02T14:39:04.202+00:002015-06-02T14:39:04.202+00:00@gastro george, Yes, I'd hoped that was obviou...@gastro george, Yes, I'd hoped that was obvious, but indeed there are many who believe this.<br /><br />@anon, by using the word 'proof' I guess you get to inure yourself against evidence that conflicts with your ideological worldview. However, if you were at all interested in evidence, you might consult the IMF paper linked by SWL.Magnusnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-42013258351108233492015-06-02T14:38:41.683+00:002015-06-02T14:38:41.683+00:00You are misinterpreting what I said. Read the whol...You are misinterpreting what I said. Read the whole paragraph and the next.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67565305092723168812015-06-02T14:35:15.234+00:002015-06-02T14:35:15.234+00:00Not if interest rates are at the ZLB and inflation...Not if interest rates are at the ZLB and inflation is below targetMainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59580135469024376792015-06-02T14:35:06.991+00:002015-06-02T14:35:06.991+00:00gastro george2 June 2015 at 04:53
Haven't you...gastro george2 June 2015 at 04:53<br /><br />Haven't you read S.W-L? His belief is "not because of empirical studies that try to directly estimate multiplier sizes." <br /><br />So that is an a-priori belief. If you share that faith and therefore want to expand government expenditure, it will have to go deeper into debt. Now, a large part of the population is against an expansion of public debt, as the election has shown.<br /><br />Those are the people who require proof before agreeing to raising public debt, which is very high as it stands<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35783189707882288152015-06-02T11:53:55.640+00:002015-06-02T11:53:55.640+00:00@Anon - AFAICS the first assertion was "... b...@Anon - AFAICS the first assertion was "... before raising public debt." How do *you* know what will happen?gastro georgenoreply@blogger.com