Archive for September 10th, 2010

Seven myths on immigration

September 10, 2010

I pointed out this short paper which looks at impact of immigration on economy. Not surprisingly (for an economist), imigration is beneficial. In another paper also not surprisingly, governments have restricted immigration in this crisis.

In this article, Darrell M. West of Brookings points to 7 myths surrounding immigration:

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Fiscal multipliers vary over business cycle

September 10, 2010

Debate over fiscal policy and fiscal miultipliers just keeps getting interested. Gulzar summarises debate on fiscal policy institutions. And now this recent paper by Alan J. Auerbach, Yuriy Gorodnichenko says that fiscal multipliers differe depending on what part of business cxycle you are on. The multiplier is around 1-1.5 in recessions and 0-0.5 in expansions.

In Voxeu, they summarise their paper:

Plainly, the size of the multiplier varies considerably over the business cycle. For example, in 1985 an increase in government spending would have barely increased output. In contrast, a dollar increase in government spending in 2009 could raise output by about $1.75. Typically, the multiplier is between 0 and 0.5 in expansions and between 1 and 1.5 in recessions.

Note the size of the multiplier tends to change relatively quickly as the economy starts to grow after reaching a trough. Thus, the timing of changes in discretionary government spending is critical for effectiveness of countercyclical fiscal policies.

Second, to measure the effects of a broader range of policies, we estimate multipliers for more disaggregate spending variables, which often behave quite differently in relation to aggregate fiscal policy shocks.

Specifically, we find that defence spending has the largest multiplier, with the maximum response of output being $3.56 for every dollar in defence spending in a recession.

Fascinating stuff.

Why did Lehman fail? Facts vs Myths

September 10, 2010

Thomas C. Baxter, Jr. of Federal Reserve Bank of New York gives a superb testimony to FCIC on the topic. As per his words, Fed and Treasury tried theior best to support Lehman but could not prevent the failure. In amother speech at the same venue, Richard Fuld, CEO of ex-Lehman gives an opposite picture.

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Mankiw’s advice to students going to college

September 10, 2010

Greg Mankiw gives some valuable advice to students going to college. He

AS a Harvard professor who teaches introductory economics, I have the delightful assignment of greeting about 700 first-year students every fall. And this year, I am sending the first of my own children off to college. Which raises these questions: What should they be learning? And what kind of foundation is needed to understand and be prepared for the modern economy?

He points to 4 things to learn:

  • Learn some economics
  • Learn some finance
  • Learn some psychology
  • Ignore advice as you see fit (follow your own path)

Read the article for more details. Interesting to see psychology making to the list. I would add economic history as well. For a more detailed write-up  in what to include in basic economics textbook  see this by Blinder


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