Archivio per 30 ottobre 2014

30
Ott
14

How the IMF got it wrong on austerity by ignoring psychology

THE INTERNATIONAL Monetary Fund: wrong again

At the end of last week, the IMF abandoned its criticism of the UK government’s economic strategy. Christine Lagarde, the IMF chief, said her organisation had “underestimated” the strength of the recovery in Britain, and the IMF now believes that the UK will be the fastest growing of any major economy in 2014. In complete contrast, IMF chief economist Olivier Blanchard issued dire warnings in early 2013. George Osborne, he pronounced, was “playing with fire”. Unless austerity policies were abandoned, the UK economy risked a triple dip recession.

Both Blanchard and the IMF have got form on these matters. In early 2013, Blanchard and his colleague Daniel Leigh published an IMF working paper on the size of the fiscal multiplier. The multiplier, a theoretical concept invented by John Maynard Keynes in the 1930s, is the most fundamental concept in the whole of macroeconomics. It measures the eventual impact on the economy as a whole, GDP, of a sustained increase or decrease in public spending. An increase in such expenditure brings more people into work, they in turn will have more to spend, the companies whose products they buy will have more revenue, and will employ even more people. The initial impact is multiplied through the economy. Sounds simple. But there are many potentially offsetting factors to take into account. Some extra spending will be on imports, for example, which does not boost domestic output at all. The bigger public deficit which the extra spending creates may lead to higher interest rates.

Source: www.cityam.com

See on Scoop.itBounded Rationality and Beyond

30
Ott
14

How the IMF got it wrong on austerity by ignoring psychology

See on Scoop.itBounded Rationality and Beyond

THE INTERNATIONAL Monetary Fund: wrong again

At the end of last week, the IMF abandoned its criticism of the UK government’s economic strategy. Christine Lagarde, the IMF chief, said her organisation had “underestimated” the strength of the recovery in Britain, and the IMF now believes that the UK will be the fastest growing of any major economy in 2014. In complete contrast, IMF chief economist Olivier Blanchard issued dire warnings in early 2013. George Osborne, he pronounced, was “playing with fire”. Unless austerity policies were abandoned, the UK economy risked a triple dip recession.

Both Blanchard and the IMF have got form on these matters. In early 2013, Blanchard and his colleague Daniel Leigh published an IMF working paper on the size of the fiscal multiplier. The multiplier, a theoretical concept invented by John Maynard Keynes in the 1930s, is the most fundamental concept in the whole of macroeconomics. It measures the eventual impact on the economy as a whole, GDP, of a sustained increase or decrease in public spending. An increase in such expenditure brings more people into work, they in turn will have more to spend, the companies whose products they buy will have more revenue, and will employ even more people. The initial impact is multiplied through the economy. Sounds simple. But there are many potentially offsetting factors to take into account. Some extra spending will be on imports, for example, which does not boost domestic output at all. The bigger public deficit which the extra spending creates may lead to higher interest rates.

See on cityam.com




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