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The ARRA's Boost to the GDP Growth Rate Ends in Two Quarters

Menzie Chinn sends us to:

Peter Hooper (2009), "Drivers and Drags: US Macroeconomic Setting for 2010," Global Economic Perspectives (New York: Deutsche Bank; December 18):

Drivers of growth

Fiscal stimulus is a key near-term driver

Based in part on CBO estimates, we expect the combined positive effects on the level of real GDP of the tax cuts, transfers, and spending increases in the ARRA package to peak around the middle of next year and then to begin to diminish. Translating these level effects into impacts on the annual rate of growth of GDP yields a boost of 1 to 2 percentage points to GDP growth through mid-2010. That growth effect then drops to zero and eventually turns negative during the second half of the year, subtracting about a percentage point from growth during 2011. This is a key reason why we see growth receding somewhat in 2011 relative to 2010. We have not assumed that a major portion of the Bush tax cuts will be allowed to expire at the end of 2010, but that does pose a downside risk to the forecast.

It's boost to the level remains, of course, but it would be really nice if we had another stimulus program in the pipeline that would kick in in six months or so.

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