Friday, March 19, 2010

DeLong needs to explain the multipliers again

In Sept 2009 Brad was quoting 1.6, absent Fed interest rate hikes:

The best way to phrase it is that the multiplier is 1.6--unless fiscal stimulus leads the Federal Reserve to fear inflation, in which case it will take action to cut the multiplier down to whatever value it wishes. The decisive point is that if the Federal Reserve doesn't take action to cut the multiplier below 1.6, we will really wish we had undertaken an even bigger fiscal stimulus. And if the Federal Reserve does take action to cut it down, we won't be too upset at having (temporarily) cut taxes, raised transfers to states, and spent some money on infrastructure.
So, did the Fed raise interest rates in 2009, or is the multiplier greater than 1.0?

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