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Tag Archives: deficits

Implications of a “No Recovery Package” Outcome

From Deutsche Bank on Sunday: In the US, fiscal uncertainty is a major issue. As outlined above, we now assume that significant further support will not be forthcoming until after the election. The resulting drop in income support for households is already beginning to depress activity and we see GDP growth slowing to near zero in Q4 as consumer spending slides. Growth will pick up in Q1 with some post-election fiscal support. This manifests in zero (0) growth in 2020Q4. Figure 1: GDP...

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CBO on the Macro Impact of Pandemic Recovery Packages Thus Far

On Friday, the CBO released The Effects of Pandemic-Related Legislation on Output. In March and April of 2020, four major federal laws were enacted to address the public health emergency and the economic distress created by the 2020 coronavirus pandemic. That legislation provides financial support to households, businesses, and state and local governments. In this report, the Congressional Budget Office estimates the legislation’s effects on economic output. Deficits. The legislation is...

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Congressional Research Service: “Fiscal Policy and Recovery from the COVID19 Recession”

From the summary of the document, which reviews the literature and current macroeconomic state of play. Some key findings are germane to the current intra-Republican party debate over how to proceed with the current recovery package. I know it is the triump of hope over experience to think they will accede to expertise, but here goes. Economic theory and empirical evidence suggest that stimulative measures tend to move the economy toward full employment as the economy recovers from the...

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The Current Crisis: SitRep and Interpretation Lecture

I was lucky enough to get assigned to coteach a macro course (with Charles Engel) this semester. However, as time passed, it seemed strange to go through the models without referring to current events — in my half of the course, I got to teach one lecture in person, and then had to switch to remote teaching –, so here is my digression from the syllabus, talking about — among other things — why a “V” recovery is not likely, contra Larry Kudlow, Stephen Moore, et al. Source: Deutsche Bank,...

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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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