We Knew That Already

Greg Mankiw cites a citation of a 1994 paper analyzing fiscal and monetary responses to recessions.

From the abstract:

…Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. … the interest rate falls account for nearly all of the above average growth that occurs early in recoveries.

Interesting, but it only shows that late, small fiscal stimuli don’t do any good. And since they’ve almost all been after "the trough," is it any surprise that they don’t account for any of the growth "early in recoveries"?

This in no way proves that "prompt and large" fiscal stimulus works. But it does make one wonder…






One response to “We Knew That Already”

  1. […] No, but we don’t know if it will be. And let’s not forget that if fiscal stimulus is not “prompt and large,” it doesn’t do any good. Makes this criterion difficult to act […]