The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.
From IMF WEO via Alphaville
The estimation of the fiscal multiplier, which tells us the bang we get for each buck of government spending, is the driver for the future of the global economy. if the multiplier is low, below 1, then for every dollar spent by the government there will be less than a dollar of GDP generated. If multipliers are low, then the government should not engage in deficit spending. One the other hand, we can increase aggregate spending if we have a multiplier above 1. The choice within the election could be based on what you think the multiplier will be. Of course, this number is not stable.Tthe choice of policy will make the multiplier different and the time period reviewed will show a different estimated multiplier.
Now we have evidence that the IMF believes that the multiplier is actually higher than originally estimated. The new estimate suggest hat there is room for more fiscal spending. There is also evidence that the multiplier will be affected by the monetary regime that you are in. If there is a low interest rate environment, there will likely be a higher multiplier on the fiscal side. A zero rate environment would be a perfect environment for fiscal policy to be used to shift aggregate demand.
The evidence is spotty, but there is a strong case given the current growth uncertainty to try and boost aggregate demand through some further government stimulus.
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