Thursday, October 18, 2012

Don't know why, there's no sun up in the sky

Maybe the world's politicians can't make up their minds what economic policies work, say two IMF economists (Kose and Terrones);

Empirical evidence suggests that uncertainty tends to be detrimental to economic growth. The growth rate of output is negatively correlated with macroeconomic uncertainty. Our empirical analysis indicates that one standard deviation increase in uncertainty is associated with a decline in output growth of between 0.4 and 1.25 percentage points depending on the measure of macroeconomic uncertainty.... Policy-induced uncertainty is also negatively associated with growth. ...policy uncertainty has increased to record levels since the Great Recession. Specifically, the increase in policy uncertainty between 2006 and 2011 was about five standard deviations.
This sharp increase in policy uncertainty may have stymied growth in advanced economies by 2 and a half percentage points during this period ....The degree of economic uncertainty also appears to be related to the depth of recessions and strength of recoveries. In particular, recessions accompanied by high uncertainty are often deeper than other recessions ....
Similarly, recoveries coinciding with periods of elevated uncertainty are weaker than other recoveries. The unusually high levels of uncertainty the global economy experienced since the 2007-2009 financial crisis and the associated episodes of deep recessions and weak recoveries play an important role in explaining these findings.

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