Richard Clarida on multipliers

The always-keen John de Palma sent me this:

(…)policy multipliers
are likely to be disappointingly small compared with historical
estimates of their importance. Many of you will remember from Econ 101
the idea of the Keynesian multiplier, which is that the impact of
traditional macro policies is "multiplied" by boosting private
consumption by households and capital investment by firms as they
receive income from the initial round of stimulus(…) Policy
multipliers are greater than 1 to the extent the direct impact of a
policy on GDP is multiplied as households and companies increase their
spending due to the increased income flow they earn from the
debt-financed purchase of goods and services sold to meet the demand
generated by the initial round of stimulus. Historically, multipliers
on government spending are estimated to be in the range of 1.5 to 2,
while multipliers for tax cuts can be much smaller, say 0.5 to 1. But
these estimates are from periods when households could – and did – use
tax cuts as a down payment on a car or to cover the closing costs on a
mortgage refinance(…)With the credit markets impaired, tax cuts, as
well as income earned from government spending on goods and services,
will not be leveraged by the financial system to nearly the same
extent, resulting in (much) smaller multipliers(…)


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