Menzie Chinn nominates University of Chicago economics professor Casey Mulligan:
GDP, Potential, and Debt Forecasts -- and Implied Multipliers: Professor Mulligan has asked if the CEA's estimated effects of the ARRA imply fiscal policy multipliers of "20 or 50 or something like that". I don't know how he got that number, but here is what I wrote in my August 1st post:
Here's a way to think about what the impact of ARRA has been on 2009Q2 growth. About $60 billion of stimulus funds had been expended by end-June, of which a large portion is in the form of tax rebates. The price deflator is about 10% higher in 2009Q2 than in 2005, so $60 billion translates to about 54.5 billion 2005$. This is a cumulative figure, while 2009Q2 SAAR GDP was 12892 billion, or 3223 billion Ch.2005$ at quarterly rate. If the multiplier is 0.5 (keeping in mind a large chunk of these funds are tax rebates), then growth was about 3 percentage points higher (q/q SAAR) than would have otherwise occurred; I think this is how Josh Bivens arrived at the conclusion that GDP growth would have been 3% lower in the absence of the ARRA.
Since Dr. Romer indicated that the amount spent (see footnote 4), based on Recovery.com and IRS data we are not privy to, was about $100 billion by end-June (rather than the $60 billion I used), then the multiplier required to get to the percentage point impacts on SAAR q/q GDP she indicated is even smaller than I assumed...
Recall that the multiplier on a quarter-by-quarter basis is a dynamic animal--so 0.5 as a within-the-quarter effect is not that small.
But it is two orders of magnitude lower than 50.
I remember when it used to be that addition was a required skill to get a Ph.D. in economics...