Friday, November 2, 2012

The Impact Of Austerity On UK and Eurozone

This is a report on research which estimates the effect of austerity programs in the UK and the eurozone.  The estimates are for the period between 2011 and 2013.  GDP will be down 5% in the UK, 12% in Greece, almost 10% in Portugal, and 6.7% in Spain.  Monetary policy can do little to counter the contraction from fiscal policy because it is at the zero bound.  That is, interest rates cannot be reduced any further.

The study also shows that cutting debt does not increase confidence in the private sector so that spending is encouraged.

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