Macro-economic Effects of the Fiscal Stimulus Measures in Austria
In order to cushion the impact of the financial and economic crisis on the real economy, the Austrian government adopted fiscal stabilisation packages. Relative to GDP, these are among the largest in an international comparison, amounting to 4.2 percent of 2008 GDP in cumulative terms and including similar measures taken by the Lander (federal states). Simulations with the WIFO macro-economic model suggest that these measures, together with those taken by Austria's major trading partners, contribute substantially towards limiting the repercussions of the crisis, reducing the fall in GDP in 2010 by 2.1 percentage points. With a share of less than 30 percent of the total amount spent, investment geared towards raising potential growth in the future receives less emphasis than in a sample of 11 OECD countries with an average share of almost 40 percent.
The Great Recession vs. the Great Depression: Stylized Facts on Siblings That Were Given Different Foster Parents
Abstract This paper compares the depth of the recent crisis and the Great Depression. We use a new data set to compare the drop in activity in the industrialized countries for seven activity indicators. This is done under the assumption that the recent crisis leveled off in mid-2009 for production and will do so for unemployment in 2010. Our data indicate that the recent crisis indeed had the potential to be another Great Depression, as shown by the speed and simultaneity of the decline in the first nine months. However, if we assume that a large second dip can be avoided, the drop in all indicators will have been smaller than during the Great Depression. This holds true specifically for GDP, employment and prices, and least for manufacturing output. The difference in the depth in the crises concurs with differences in policy reaction. This time monetary policy and fiscal policy were applied courageously, speedily and partly internationally coordinated. During the Great Depression for several years fiscal policy tried to stabilize budgets instead of aggregate demand, and either monetary policy was not applied or was rather ineffective insofar as deflation turned lower nominal interest rates into higher real rates. Only future research will be able to prove the exact impact of economic policy, but the current tentative conclusion is that economic policy prevented the recent crisis from developing into a second Great Depression. This is also a partial vindication for economists. The majority of them might not have been able to predict the crisis, but the science did learn its lesson from the Great Depression and was able to give decent policy advice to at least limit the depth of the recent crisis.
Strengthening the resilience of an economy: Enlarging the menu of stabilisation policy to prevent another crisis
309 There is an increasing number of analyses of how the current fi nancial crisis came about. They discuss the contribution of the fi nancial sector, its “innovative” products and the ineffi ciency of existing regulation, the imbalances in the global economy and the role of globalisation. They suggest how to combat the present crisis, and also touch on how the economic system in general could react in the long term, and discuss the role of the state.1