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Tag Archives: deficits

Where Did All the Stimulus Go?

By April 2018, the Tax Cut and Jobs Act and the Bipartisan Budget Act of 2018 had been put into law. The CBO projected a bump in GDP growth, relative to counterfactual. However, the actual record has been fairly plodding, as shown in the below figure. Figure 1: Reported GDP (dark blue), Macroeconomic Advisers nowcasts of 10/22 (light blue), CBO projection of April 2018 (dark red), and Trump 4% prediction starting from 2018Q1, all in billions of Ch.2012$, SAAR, on log scale. Trump...

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Guest Contribution: “It’s Finally Time for German Fiscal Expansion”

Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. A  appeared in Project Syndicate. As long as the German economy was doing well, as it did during the recovery from the 2008 global financial crisis, there existed a coherent rationale for German fiscal austerity. The national commitment to budget discipline was enshrined in the 2009 “debt...

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Prebuttal: Fiscal Policy Can Be Effective

In my mind, absent a shooting war, the economy is headed for a slowdown, if not a recession. I am confident that, should the administration or anybody else propose countercyclical fiscal policy, a set of the usual suspects will deny the efficacy of discretionary policy. Hence,  a prebuttal is called for. A Typical Skeptic’s View Here’s a quote from an article the last time the fiscal debate raged, in 2010. From Brian Riedl’s The fatal flaw of Keynesian stimulus (Washington Times): Last...

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Guest Contribution: “A Tale of Two Surplus Countries: China and Germany”

Today we are fortunate to present a guest contribution written by Yin-Wong Cheung (City University of Hong Kong), Sven Steinkamp (Universität Osnabrück) and Frank Westermann (Universität Osnabrück). This contribution is based on a paper forthcoming in the Open Economies Review. In recent years, large and sustained current account imbalances have been a focus of research in international economics. While there is a large literature on deficits and their economic implications, there is only...

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Why Is the Structural Budget Deficit Blowing Up Since Trump?

The structural, or cyclically adjusted, budget balance has been deteriorating. In accounting terms, what’re the drivers? Figure 1: Structural/cyclically adjusted budget balance as a percentage of potential GDP. Source: CBO, Budget and Economic Outlook, Jan. 2019. Steven Kopits writes: “…spending side. That also appears out of control…” While I agree that the end of the spending restraints is partly at fault, my view is that thus far, the biggest cause of the deterioration is from the...

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When the Textbook Is Right: Implications of the Trump Fiscal/Trade Regime

Today we learned that through March, the Federal budget deficit was 15% larger than the corresponding point in the last fiscal year — as expected given a not particularly stimulative tax cut (so much for tax cuts paying for themselves, as Stephen Moore claimed) and the ending of spending restraints. The dollar remains at elevated levels, as interest rates have risen. The trade deficit, excluding petroleum, continues to deteriorate. As I explained to my macro class today… it’s all textbook...

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Two Years of “Winning”: Messages from GDP, International Investment Releases

The release of the final release for GDP, and the international investment position provides an opportunity to assess progress on the trade war. I for one have gotten tired of “winning”. Figure 1: Current account (NIPA definition) (blue), and Net International Investment Position (green), both as a share of GDP. Orange shading denotes Trump administration. Source: BEA, 2018Q4 final release, 2018Q4 international investment release, author’s calculations.  There’s been some volatility in...

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MMT for the ADD

I’ve written up a draft set of notes for my undergraduate macro students. Here is my interpretation of Modern Monetary Theory for them. Comments welcome. This post is for those who are unable to read an entire completely verbal exposition regarding Modern Monetary Theory (MMT). MMT has been the source of some debate recently. Instead of critiquing the literature, I attempt to illustrate the approaches for “paleo-Keynesians” relying on Wray (2011), Bell (1998), and the interpretations by...

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Guest Contribution: “Can Specialization Patterns and Trade Costs Account for External Balances?”

Today, we are pleased to present a guest contribution written by Emine Boz (IMF), Nan Li (IMF) and Hongrui Zhang (IDB). The views expressed herein are those of the authors and should not be attributed to the IMF, IDB, their Executive Boards, or the managements of those organizations. Some major economies specializing in sectors that face relatively high trade costs, such as services, tend to run current account deficits, whereas countries specializing in more easily tradable sectors, such...

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