In their recent article, Barry Eichengreen and Kevin O’Rourke have pointed out that their own estimates of multiplier of US ( the change in GDP from a $1 change in government spending) based on the data from the 1930s is in the range of 1.6. This has confirmed the estimates of the IMF which had estimated the US multiplier to be in the range 0.9 to 1.7. The IMF, by stating that the multiplier was in fact higher than it was previously supposed, had in effect annoyed a lot of pundits, as a higher multiplier of US implies that the austerity measures of Europe had in fact been a farce and the prime reason behind the continent's recession. The research by Eichengreen and O'Rourke really deserves great praise. Read on.
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