Multiplier maths


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If all went well, asset purchases would cease only by the middle of 2014… The Fed this week linked the current round of asset purchases to the achievement of economic goals rather than a specific date or programme size as it had in the past. QE would continue, it said, until the outlook for the labour market had improved “substantially”. In his press conference Mr Bernanke clarified what that meant: a drop in the unemployment rate to about 7%.
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They examined several European countries and showed that fiscal multipliers are substantially higher than previously assumed. Previous IMF studies had assumed multipliers of roughly 0.5. In other words, a €1 injection of government money into the economy would only have a net benefit of 50 centimes. By contrast, Messrs Blanchard and Leigh found that the actual multipliers in the early years of the crisis were “substantially above 1”.
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