Austerity multiplier fail!
According to the IMF, policy documents seen by fund officials suggest that governments are commonly using fiscal multipliers of about 0.5 to calculate the impact of austerity on growth. A multiplier of 0.5 would mean that for every $1 lost in government spending, 50 cents is wiped from output.“Our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the great recession,” the fund said. “This finding is consistent with research suggesting that in today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronised fiscal adjustment across numerous economies, multipliers may well be above 1.”
From the FT’s Claire Jones at the IMF meeting in Tokyo.
(Kate)
