Time Lags and the Multiplier Effect

Time Lags and the Multiplier Effect

In the first two videos of this series Tim explained us the macroeconomic fundamentals of fiscal policy. In this video he will highlight some of the issues that make fiscal policy challenging for governments, since the theoretical outcome often differs from reality.
Overview

Discretionary fiscal policy is far from perfect because there are often significant and unpredictable time lags involved, and the magnitude of a particular policy tool on GDP is often difficult to predict because of multipliers. Having said this, time lags and multipliers have been observed over time and are fairly well understood even if not always perfectly predictable. Time lags refer to the fact that discretionary fiscal policy tools used by governments take time to generate the targeted counter-cyclical results. Multiplies mean that the amount of fiscal stimulus needs to be carefully calibrated in terms of the targeted effect.

Key learning objectives:

  • Explain time lags, as well as how and why time lags can affect the implementation of discretionary fiscal policy

  • Explain how multipliers can affect the potency of discretionary fiscal policy

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Summary
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Expert
Tim Hall

Tim Hall

Tim has nearly 30 years of experience in the international capital markets at major global institutions and has worked both on the buy-side and the sell-side. He has worked with numerous companies, banks and governments in developed and emerging markets on investment grade and high yield bond issues, from straight-forward to very complex acquisition/leveraged financings. Tim has also been on the board of a UK “challenger bank.” Tim has an MBA from the Wharton School, and is a CFA.

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