Archive for the ‘economic stimulus’ Category

The Council of Economic Advisers argues for a significant role for the Economic Recovery and Re-investment Act of 2009 in their third report on the topic here.  Not surprisingly, they argue for a large effect. And economic theory can support this claim: when interest rates hit the zero lower bound, fiscal policy can be extremely effective at increasing output and welfare, as this recent paper by my colleagues shows. But there is a caveat.  Once the zero lower bound is not binding, fiscal policy can be quite wasteful. More generally, we need theory that matches the salient features of reality, such as the spending response to tax rebates that I have studied (see these papers).

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The warning tremors that might presage a major US fiscal crisis began today.  A major credit rating agency, Moody’s, wrote of the current US fiscal projections: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.”


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The American Recovery and Reinvestment Act, signed into law on February 17, 2009, provides for a one-time economic recovery payment of $250 to be disbursed this May to people who receive Social Security, Supplemental Security Income, or Railroad Retirement and Veterans benefits. Anyone eligible for one of these benefits at any time during the months of November 2008, December 2008 or January 2009, is eligible for the one-time payment.

Will this have a noticeable impact on consumer spending? I expect people will spend at least half of these payments within a couple of months of receiving the money. Before calculating the direct macroeconomic effect of these payments, why do I think people will spend so much? (more…)

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