What ends recessions?
In today's Washington Post, Kevin Hassett writes about recessions. He refers to an old article by David and Christina Romer, the abstract of which begins as follows:
We analyze the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. Simulations using multipliers from both simple regressions and a large macroeconomic model show that the interest rate falls account for nearly all of the above average growth that occurs early in recoveries.
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