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Even less precise

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CBO “estimates” of the effect of stimulus [2] on employment in the the third quarter of 2011 are even less precise than earlier ones. Stimulus spending “increased the number of people employed by between 0.4 million and 2.4 million.

That’s a six-fold range for those of you keeping score at home. Macroeconomics not the way it ought to be, but the way it is–unbelievably imprecise.

The reason the range is even bigger than past estimates is that the CBO is now using .5 for its lower bound estimate of the Keynesian multiplier, based on recent work by Valerie Ramey [3]. (HT: Garett Jones [4]) A multiplier of .5 means that for every dollar of government spending, there is a 50 cent reduction in spending by non-governmental sources (private consumption and investment).

I put “estimates” in quotes because of the way the CBO “estimates” [5] these things.


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