Tuesday, March 1, 2011

Stimulus Estimates: Sensitivity Analysis

Tomorrow I will post an article about government spending and GDP growth during 2010. That article has two charts showing Keynesian projections for economic growth, using 2009 Q4 growth as a benchmark.

The article briefly notes that the benchmark doesn't really matter for the conclusion, because the data show a clear negative correlation between government spending growth and GDP growth. But the charts below help show more vividly that the benchmark does not matter, by using an alternate normalization -- the average government spending and GDP growth during the period shown. All of this will make more sense when the original article is posted Wed March 2.


7 comments:

James A. Donald said...

While I agree with your conclusion, it does not follow from your evidence. It could be that our masters are so wise that they anticipate bad growth and expand government spending to remedy it - and I am sure that is what they would tell us.

D-Mode said...

I don't see the negative correlation from these two charts. If anything, there is a moderately positive correlation. Also, how did you calculate the government spending in the X axis? Does this account for the spending cuts at the state and county levels ?

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