Wednesday, November 26, 2008

"Then a stimulus of about 4 ppts of GDP -- roughly $580 billion -- will bring output up to about potential. "

Menzie Chinn on Econbrowser with some thoughts about the stimulus:

"Then a stimulus of about 4 ppts of GDP -- roughly $580 billion -- will bring output up to about potential. The bigger the tax cut element skewed toward higher income deciles, the larger the required stimulus. (However, I'm optimistic that with the new economic team of Summers, Orszag, Romer and Geithner that's been selected, the package will indeed hew to the idea of maximizing the stimulative impact, which is consistent with targeting the lowest and middle income groups for tax cuts/rebates [5], [6].)

And if stimulus across countries can be synchronized, then so much the better (especially since it would be hard to spend at $580 billion in one year).

By the way, the reason why I don't say "coordinated fiscal policy" is because, in the lexicon of academic economists, this would mean commitment to some sort of rules so that Nash outcomes can be avoided. See Frankel and Rockett (1986). In this discussion, I have in mind a more modest, one-shot, event, since I'm not sure a coordination is feasible over the longer term.

On a side note, I've just been watching Nancy Pfotenhauer on Larry King characterizing the new Obama economic team as "not change" because they are centrists. I think she misses the point entirely (not surprising). The "change" is not a matter of the economic ideology of the new team members -- rather the "change" is bringing in people who value expertise and evidence-based policymaking over ideology and dogma. That is, the end of PoMo Macro policymaking."

Her figure is probably close to what will be spent, over two years. At least, as of today.

No comments: