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07/06/2009

And more on Bernstein-Romer

Comments on this post suggest that people aren’t quite understanding how to read the graph. So, a bit more.

First, there are two elements here: there’s a baseline, which is the prediction of what the economy would have done without the stimulus, and there’s the predicted change from that baseline that is the effect of the stimulus.

Clearly, the baseline was way too optimistic. But the question under discussion was how much effect relative to the baseline the stimulus was supposed to have had by now. The figure actually shows predictions by quarter. Roughly, the stimulus was supposed to reduce unemployment — again, relative to the baseline — by about 0.2 percentage points in the second quarter of this year; by about 0.7 percentage points in the third quarter.

The most recent unemployment data we have are for June, which was the end of the second quarter. So the prediction was that the stimulus would cause unemployment to be something like 0.3 or 0.4 percentage points lower in June than it would have been otherwise.

That’s not much. The stimulus wasn’t ever expected to be having a large effect this early.


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