Regarding an “Innocent” Mistake of the IMF: The Greek Case: an Input Output Approach
It has been admitted that the fiscal multipliers of the Greek economy were seriously underestimated. At the beginning of the crisis, based on a previous report of O.Blancard (see IMF Oct 2012), the IMF assumed that the fiscal multipliers of the Greek economy could be even less than one. According to the aforesaid report: “The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7 (International Monetary Fund, 2012b,).”
Of course this finding is not compatible with a basic knowledge of macroeconomic theory. As a logical consequence, reality and the IMF itself proved this IMF report wrong (International Monetary Fund, 2013).
It would be trivial, based on the basic Keynesian model to show that the multipliers could not be in any case less than one. Someone could possibly and quite fairly argue that the Keynesian model, in its initial form, has some weak points. It cannot represent all the intersectoral relations of the economy (Pasinetti, L. (1977)). Nevertheless, this can easily be shown in the general case, using the Input Output Tables for the Greek economy, that the existence of multipliers...
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