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I am not sure what baseine Beckworth imagines Keynesians have. The reference to "growing" seems to suggest we normally forecast zero growth. I think most Keynesians have noticed that average growth rates are positive. I think a charitable interpretation of Beckworth's question follows
Since 2010 the GDP growth rate has been near the long term average. In contrast public spending growth has been negative -- far below the long term average. A Keynesian must argue that something else is unusual so that fiscal tightening and normal growth can both occur. In what way were economic conditions in 2010 unusual ?
Since 2010 the GDP growth rate has been near the long term average. In contrast public spending growth has been negative -- far below the long term average. A Keynesian must argue that something else is unusual so that fiscal tightening and normal growth can both occur. In what way were economic conditions in 2010 unusual ?
GDP normally growth. Average GDP growth in years after WWII and soon after a sharp decline is much higher than average GDP growth in other years after WWII. Standard baseline forecasts are made using atheoretic VARs. They suggest that the output gap is a meaningful concept, because output gaps normally narrow. The current output gap is very similar to the 2010 output gap. This is unusual. In fact the most recent precedents occured in the 1930s (note my caution 1932 was more extreme than 2013 I'm pretty sure that the recovery from the great recession of 1937 was much much sharper).
I thought it was universally agreed that the recovery has been as expected (e.g. by Krugman) or slower than expected (as most spectacularly by Edward Prescott who said 2009q1 would be fine).
I thought it was universally agreed that the recovery has been as expected (e.g. by Krugman) or slower than expected (as most spectacularly by Edward Prescott who said 2009q1 would be fine).
Given the estimated output gap, the unemployment rate and the Federal Funds rate a simple minded forecast would predict higher growth than has taken place since 2010q4. Yes there was a surprisingly rapid increase in the growth rate in 2010 (the fastest such acceleration since 2000). Keynesians think that might have had something to do with the ARRA.
Since ARRA spending peaked and as it has declined (along with the continuing decline of State and local spending) actual growth has repeatedly surprised most Keynesians -- who expected higher growth. For example, the Fed staff is Keynesian (as is Bernanke). Their forecasts have been reliably wrong. In the direction opposite the error that Beckworth asserts.
I guess essentially all of the people who are paid to make macroeconomic forecasts by others who want accurate forecasts are data denying Keynesians.
I would be interested in people who have analysed data and concluded that the current troubles don't provide strong new evidence that fiscal tightening causes lower output at least when safe short term interest rates are zero.
I'm pretty sure there is a paper by John Taylor et al cited by John Taylor et another al to claim that "studies" show this. The authors of the one (1) other study they cited noted that the study didn't say what Taylor et other al said it said.
I think I have managed to keep this post civil. Can't resist linking to my friend Brad.
2 comments:
Robert,
Thanks for your response. If you note the chart in my post shows the cyclically-adjusted or structural budget deficit as reported by the IMF Fiscal Monitor. It has gotten smaller since 2010. The shrinking of the structural budget deficit means fiscal policy has explicitly tightened--independent of business cycle influences on the budget--which in an economic slump should have a contractionary effect on AD. My point is that has not and that is because the Fed has offset it. This speaks both to the power of monetary policy, even at the ZLB, and to failure of monetary policy to do more.
My point is that no Keynesian says that the change of GDP is a valid measure of the effect of policy on GDP. Notably GDP tends to grow. This is not because fiscal or monetary policy is so much looser than it was 100 years ago.
Similarly, everyone who attempts to forecast GDP assumed that with neutral policy, GDP growth would be ususually fast from 2010 till now, because GDP was far below potential GDP.
If there is a puzzle to be explained by monetary policy, there should be someone who does not express disappointment in the pace of the recovery.
You might also search this blog for "straw man". You seem to have the impression that there are people who should admit that their prediction of GDP conditional on fiscal austerity was too low.
For all I know, there are such people, but is necessary to name and quote them at least is anyone (such as my humble self) asks who they might be.
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