The "Fatal Conceit" of Fiscal Multiplier
Naming a numeric multiplier of the unity (1) with two more digits after decimal point, Christina Romer once spoke high of fiscal policy. Then on, Robert Barro did not like her claim among other reasons for “being imprecise by being too precise.” After all, a quotation of number smaller than the “margin of error” is statistically incorrect . Whoever is more right, “fiscal multiplier” is more like snake oil, misconceived and stillborn. First, one of many parents of the misconceived is from cross-sectional data (L -1 ) at a given point in time (T 0 as of the month of survey). Exponents and supporters of “multiplier” neglect the simplest fact that the “marginal propensity to consume” is no more applicable to over-time stability (T -1 ) than the balance sheet is combinable to the income statement. ...