Are Stimulus Multipliers Higher During Times of High Unemployment? Not in the United States.

db6cmath teacher multiply 428 Are Stimulus Multipliers Higher During Times of High Unemployment? Not in the United States.

One of the arguments for additional fiscal
stimulus over the past few years is that, sure, multipliers for
deficit-financed stimulus are typically low enough that it’s not
worth doing. But when the economy is sluggish, like it is now, the
multiplier effect grows larger, and the payoff for additional
government spending becomes worth it. A trio of researchers from the St. Louis Federal Reserve, the
University of California, San Diego, economics department, and the
Bank of Canada decided to
look at the historical evidence in both the United States and
Canada to see if this might be true. And what they found was that
multipliers do appear to be higher during times of slack in Canada,
but not in the United States.The research team looked at gross domestic product data,
government spending, population, and the unemployment rate from
1890 to 2010 in the U.S. and 1921 to  2011 in Canada. And they
tracked the difference in multiplier effects for periods of high
unemployment  — above 6.5 percent in the U.S. and above 7
percent in Canada — versus periods of unemployment below those
thresholds. In Canada, the authors report that multipliers appear
to be a good bit bhigher during periods of high unemployment: about
1.6 compared with about 0.44 for periods below the threshold.But in the United States, the effect is quite different. Not
only are multipliers always below the 1.0 threshold where a dollar
of government spending results in a dollar of economic activity,
they’re actually very slightly lower during high unemployment,
ranging from about 0.64 to about 0.64 versus a range of 0.63 to
0.78 when below the 6.5 percent unemployment threshold. Are these results just an artifact of the particular threshholds
picked by the researchers? They tested other threshold measures and
say the results are similar. No matter how they test, the
conclusion is the same. The authors say they “find no evidence that
multipliers are higher during periods of slack in quarterly U.S.
data from 1890 to 2010.”

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Are Stimulus Multipliers Higher During Times of High Unemployment? Not in the United States.


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