05 October 2015

Effect of Austerity on US GDP

I decided I would make a little chart comparing the US output gap [1] to a counterfactual of the output gap without austerity [2]. The graph shows the actual output gap and counterfactual output gaps for government expenditure multipliers of 0.25, 0.5, 0.75, and 1.

[1] The output gap measure I used assumes that potential GDP grows as roughly 2% a year and that the output gap was zero in Q1 2005.

[2] By "without austerity" I mean "if the government spending to potential GDP ratio stayed at 20% from Q1 2005 to Q2 2015."

(The GDP measure I used is the 'GDPC96' series from fred and the government spending measure I used is the 'GCEC96' series)

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