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Tuesday, July 27, 2010

Paper: Policy helped avert Great Depression II

by Calculated Risk on 7/27/2010 10:58:00 PM

Alan Blinder and Mark Zandi will release a new paper tomorrow analyzing the impact of the policy response to the crisis ... Sewell Chan at the NY Times has a preview: In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression

In a new paper, [Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics] argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
I'll post a link tomorrow (if it is available). David Leonhardt adds:
As Mr. Blinder and Mr. Zandi note, their estimates of the fiscal stimulus are similar to the estimates of othersincluding the Congressional Budget Office.
Although Zandi completely missed the housing bubble, I've been using his estimates of the impact of policy (and estimates from Goldman Sachs), and I think they have been very useful in forecasting.