While it appears that Quantitative Easing has reached its limits and the FED intends to implement a strategy of gradual exit, there is less clear what available options exist for stimulating the economy.
While much of the debate has centered on growth prospects of the US economy in the aftermath of the crisis, a slightly overlooked issue is how the potential output has been affected by the crisis.
I discussed in a previous post about the failure of austerity measures in Portugal. Here, I would like to take a few steps back and look better at the theoretical foundations of austerity. Without being a theoretical presentation of austerity, this post rather discusses the empirical evidences regarding the effects of austerity measures.
To many, this is not news. However, given the persistence of IMF and other international institutions to insist with new austerity measures, it is still surprising.