Fiscal Policy During Recessions and Recoveries Dr Ethan Ilzetzki - PowerPoint PPT Presentation

Department of Economics and Centre For Macroeconomics public lecture Fiscal Policy During Recessions and Recoveries Dr Ethan Ilzetzki Centre for Macroeconomics, LSE Professor Wouter Den Haan Chair, LSE Suggested hashtag for Twitter users: #LSEecon

Fiscal Policy During Recessions and Recoveries Public Lecture Ethan Ilzetzki

Fiscal stimulus works… “Textbook macroeconomics says [fiscal stimulus should] have been about three times as big as the stimulus we actually got, and would have been much more focused on spending rather than tax cuts. Would such a policy have worked? All the evidence of the past five years says yes. ” Paul Krugman, NYT Sep 5, 2013

…or does it? “Curiously, this plea for more fiscal expansion fails to offer any proof that … countries that chose more budget stimulus have performed better than those that opted for more austerity.” Robert Barro, WSJ May 9, 2012

10.0 11.0 12.0 U.S. Unemployment Rate 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 1970 1972 1974 1976 1978 1980 1982 1984 US Unemployment Rate 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

U.S. Borrowing Rates 10 12 14 16 0 2 4 6 8 1955 1957 1959 1961 1963 1965 1967 1969 1971 US 10-year Government Bond Yields (%) 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

100 U.S. Public Debt 20 30 40 50 60 70 80 90 1960 1962 1964 1966 1968 1970 1972 Debt of U.S. Federal Government (% of GDP) 1974 1976 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Range of Fiscal Multiplier Estimates Histogram Across Studies (Ramey, 2011) 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

Range of Fiscal Multiplier Estimates within a Study (Blanchard, Perotti, 2002) 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% The Decline in U.S Public Investment 1950 1952 1954 1956 1958 1960 1962 1964 1966 U.S. Public Investment (% of GDP) 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Debt and Yields 17.5 200 170 35 14 160 De bt/ GDP Yie ld on 10- ye ar Pe rc e nt, 2011 nme nt Bonds Gove r 140 12 APR, c risis pe ak 120 10 100 8 80 6 60 4 40 2 20 0 0

Deficit and Yields 17.5 35 14 14 De ific it/ GDP Yie ld on 10- ye ar Pe rc e nt, 2011 nme nt Bonds Gove r 12 12 APR, c risis pe ak 10 10 8 8 6 6 4 4 2 2 0 0

Greek GDP growth and Budget Surplus 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -5 Deficit Growth -10

Cyclicality of Fiscal Policy Correlation bet betwee ween g gover ernment ex expen enditures es a and d GDP DP 1 (quarter erly, HP f filter ered ed, n net-of of-inte terest, c centra tral g govern rnment e t expenditu iture res) 0.8 0.6 0.4 0.2 0 -0.2 Dev H -0.4

Fiscal Policy During the Crisis High-income and Developing Economies

Fiscal Policy During the Crisis High-income and Transition Economies

Public Spending and GDP in the UK 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 UK GDP (real index) UK Public Expenditure (£ index)

Public Spending and GDP in Lithuania 1.1 1.0 0.9 0.8 0.7 0.6 0.5 0.4 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Lithuania GDP (real index) Lithuania Public Expenditure (LTL index)

Public Spending in the UK Nominal and Real 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 1998 2000 2002 2004 2006 2008 2010 2012

Public Spending in the UK Nominal and Real 1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 1998 2000 2002 2004 2006 2008 2010 2012 UK Public Expenditures UK REAL Public Expenditures

Fiscal Policy During Recessions and Recoveries Public Lecture Ethan Ilzetzki

Department of Economics and Centre For Macroeconomics public lecture Fiscal Policy During Recessions and Recoveries Dr Ethan Ilzetzki Centre for Macroeconomics, LSE Professor Wouter Den Haan Chair, LSE Suggested hashtag for Twitter users: #LSEecon