Summers and Fatas: The debate is particularly relevant for the current crisis. Many advanced economies have been dealing with the consequences of large fiscal deficits and debt that required a process of fiscal consolidation. In order to decide on the necessary amount of fiscal consolidation, policy makers needed to incorporate their views on GDP and its future growth rate to assess debt sustainability. As fiscal consolidation was implemented, we witnessed its negative effects on output growth. If multipliers are large, this can lead to a negative loop in which negative GDP growth leads policy makers to believe that further fiscal policy adjustments are needed.
And yes indeed our chart shows the the recessions arrive on regime change points in DC,proof sufficient that government is pro-cyclic.
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