Study Shows "Stimulus" Was Significantly More Contractionary Than Average During the Recovery from the Great Recession

November 26th, 2014
in econ_news

from the Chicago Fed

Fiscal policy describes how the expenditure and revenue decisions of local, state, or federal governments influence economic growth. In this article, we create a comprehensive measure of fiscal policy called fiscal impetus, which estimates the combined effect of purchases, taxes, and transfers across all levels of government on growth. Our goal is to use this measure of fiscal impetus to examine how fiscal policy has behaved during business cycles in the past, how it responded to the most recent recession, and how it is likely to evolve over the next several years. Our analysis reveals that policy was more expansionary than average during the 2007 recession and has been significantly more contractionary than average during the recovery. By the end of 2012, fiscal impetus was below its historical business cycle average and it is forecast to remain depressed well into the future.

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[read the complete study by clicking on image below]

Source: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2014/3Q2014_part1_mcgranahan_berman.pdf









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