Journal of Monetary Economics 2020 DOI: 10.1016/j.jmoneco.2019.05.004 View full text
Christopher L. House, Christian Proebsting, Linda L. Tesar

Abstract: We examine austerity in advanced economies since the Great Recession. Austerity shocks are reductions in government purchases that exceed reduced-form forecasts. Austerity shocks are statistically associated with lower real GDP, lower inflation and higher net exports. We estimate a cross-sectional multiplier of roughly 2. A multi-country DSGE model calibrated to 29 advanced economies generates a multiplier consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially red…

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