With many economies in fiscal consolidation mode, a debate has been raging about the size of fiscal multipliers. The smaller the multipliers, the less costly the fiscal consolidation. At the same time, activity has disappointed in a number of economies undertaking fiscal consolidation. So a natural question is whether the negative short-term effects of fiscal cutbacks have been larger than expected because fiscal multipliers were underestimated.
The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.
13.22 For all you Spanish readers out there (and those that don't know how to read Spanish, but do know how to use Google translate), Ambrose Evans Pritchard, our international business editor, has posted a blog on the minor storm in Spain that has been brewing over the issue of Catalan separatism.
12.30 One of the Nobel panel members explains why Mr Roth and Mr Shapley took this year's prize, even though "money" wasn't the focus of their research. Per Krusell says:
[Market design theory] is about central things in people?s lives, how they go to school, college [...] marriage. It's about matching people with other people.
Economics is not always about money, and that is really clear in this year's prize.
He says that Mr Roth's initial reaction to being told that he was this year's winner was:
It was worth waking up for.
He also reveals that "we did not reach Professor Shapley", meaning it is likely that the 89-year-old still doesn't know that he's won.
(L-R) Per Krusell, Staffan Normark, Peter G?rdenfors and Tore Ellingsen of the Swedish Royal Academy of Sciences present the winners of the Nobel Memorial Prize in Economic Sciences, in Stockholm on Monday (Photo: AFP).
12.19 Mr Roth (who has clearly just woken up) is addressing the media from California.
"It's very early here," he tells a reporter. He describes the win as "unimaginable".
"I certainly expected that Lloyd should win the prize," he says. It would have been a ?grave oversight? if he wasn't recognised for his work in the field. He adds:
My colleagues and I work in an area called market design which is a new area [...] when I go to class this morning my students will pay more attention.
He is asked how he will celebrate. He replies:
Coffee.
12.06 Who? Well here's Mr Roth's profile at Harvard, and Mr Shapley's at UCLA.
This year's prize focused on "economic engineering" say the panel. The prize was awarded "for the theory of stable allocations and the practice of market design".
12.01 The prize has gone to Americans Alvin Roth and Lloyd Shapley.
A screen displays photos of Nobel Prize winners Alvin Roth (L) and Lloyd Shapley (Photo: AFP).
11.56 The Nobel Prize for economics will be awarded shortly.
Robert Shiller, Kenneth Rogoff and Carmen Reinhart are among the frontrunners.
You can watch the announcement live here.
11.35 Commenting on the data, Howard Archer at IHS Global Insight, said:
The good news is that the second quarter saw an appreciable improvement in the economic position of household as real income per head was lifted by healthy employment growth, increased social benefits and reduced inflation. This supports hopes that households will step up their spending over the coming months.
The not so good news is that real household income per head is still 2.9% below the peak levels seen in mid-2009, which reinforces suspicion that any pick-up in consumer spending over the coming months will be gradual, and very possibly prone to relapses.
11.31 British households are ?69 richer than they were 3 months ago, according to official data.
Quarterly real household income per head increased by ?69 (1.6pc) in the three months to June, its highest level since the fourth quarter of 2010, the Office for National Statistics said.
Meanwhile, real household expenditure per head fell by ?7 (0.2pc) over the same period, as Britons chose to stash the extra cash away rather than splash out.
Gross household saving was ?18.2bn in the second quarter, up from ?16bn in the first quarter, according to the ONS.
Gross household saving was ?18.2bn in the second quarter, up from ?16bn in the first quarter, the ONS said (Photo: Alamy).
11.15 More work is needed to strengthen the eurozone, but there will not be any "uncontrollable" situation in the 17-nation bloc, Angela Merkel has insisted this morning.
The German Chancellor repeated that she wanted Greece to stay in the euro, but added that "the work isn?t completed?.
Her comments came as her spokesman Steffen Siebert said that Germany was opposed to another Greek debt writedown.
Angela Merkel (L) receives Panamanian President Ricardo Martinelli in front of the Chancellery in Berlin on Monday (Photo: EPA).
11.01 Portugal's PM has vowed to stick to austerity, despite the government's waning popularity.
Pedro Passos Coelho said:
Despite the bad moments the party is going through in national terms, regional elections will certainly not compromise the national strategy.
The government is braced for protests outside parliament today that will greet its 2013 budget.
Broad brush measures revealed by finance minister Vitor Gaspar this month will see the average rate of income tax rise from 9.8pc in 2012 to 13.2pc next year.
The government abandoned previous plans to raise social security payments to 18pc from 11pc amid widespread protests.
The country's main union has already planned another general strike to protest against the new measures.
The budget will be presented in parliament from around 6pm (UK time).
10.43 Citigroup has also lowered the probability of "Grexit" over the next 12-18 months to 60pc from 90pc. In a note on Friday, it said:
Politicians probably fear the negative effects (of a Greek exit) on upcoming elections (in Germany) and a diminished economic resilience in the rest of Europe to a shock like Grexit. The recent more cooperative Greek stance, together with some timid improvements in the deficit data, may also have helped. We now estimate the additional money needed to keep Greece afloat in 2013 is relatively small and, hence, fairly easy to find without another difficult approval of support needed from core euro countries.
However, we think this will still prove a temporary solution. In our view, it will become evident once again that the Greek programme remains off track and Greece?s debt is still unsustainable. Unless a write-off of official debt is agreed upon ? quite unlikely, in our view ? we think a stalemate between Greece and its international creditors will eventually lead to a withdrawal of international support leaving Grexit as potentially the only available solution for Greece. We see the most likely timing for this to happen as being H1 2014
10.42 Talk of a Greek exit hit the headlines again this weekend.
First, Sweden's finance minister said that Greece could leave the eurozone within the next six months.
This prompted Wolfgang Schaeuble, Germany's finance minister, to say that he did not see ?any sense to speculate on Greece leaving the euro? because it would be very damaging for both the country and the region.
"Everyone is trusting that the Greek government is doing what is necessary," he added.
10.28 Greece?s long-term borrowing costs have fallen to their lowest level since the country's debt restructuring in March.
The yield on ten year debt fell by 32 basis points to 17.73pc this morning, although this is still well above sustainable borrowing rates. The equivalent German bond is trading at a yield of 1.474pc.
10.11 Lithuania has become the latest country to reject austerity, as voters handed the leftwing Labour party and centre-left Social Democrats a stunning victory in the latest elections. More from our report:
The government of the Baltic nation lost out despite winning praise from big European powers and the International Monetary Fund (IMF) for its thrift and discipline.
Two women cast their ballot at a polling station in Vilnius, Lithuania
Lithuania is a member of the European Union, although it is not part of the eurozone.
09.58 Use the hashtag #smw20 to follow the single market debate on Twitter.
09.47 EU leaders including European Commission president Jose Manuel Barroso and Italian PM Mario Monti are talking about the single market at a conference this morning. I've just heard Mr Monti talking about ways to "love" the single market.
You can watch it live here.
09.25 So what does this mean in plain English?
JPM looked at 306 funds linked to one of these "stringent" indices. These account for ?107bn of assets under management, (although JPM does add that this estimate is low, as delving into the bond bucket to tot up all the Spanish bonds would take too long).
Nevertheless, it says:
...only ?3.7bn, i.e. 3.4pc, is directly benchmarked to GBI EMU IG, which is the only index that would generate forced selling in the event of a Moody?s downgrade and according to our index teams, the weight of Spanish bonds in this index is 10%, so the maximum potential selling from it ?370m.
09.20 There's also just two weeks left until Moody's will deliver its verdict on Spain's credit rating. Any downgrade will see the country's bonds fall into "junk" territory - or below investment grade.
But what would this mean for the country's borrowing costs? According to analysts at JP Morgan, not a lot.
Nikolaos Panigirtzoglou and his team have examined the possible impact of a Spanish move to the junk pile
Across major investment grade (IG) sovereign bond indices, JPM?s GBI EMU has the most stringent ratings thresholds. For instance, to be excluded from the EMU IG index JPM requires 1 of 3 ratings to be below IG, Barclays Capital requires 2 of 3 to be below IG, Citigroup requires both Moody?s and S&P to be below IG and iBoxx uses an average rating methodology across all three. Therefore, the most immediate source of selling pressure on Spanish bond yields if Moody?s does downgrade would likely come from funds benchmarked to JPM?s bond indices.
09.00 A Spanish request for aid would cost Italy the equivalent of 1.5pc of GDP, according to the country's finance minister.
Vittorio Grilli told Italian daily La Repubblica that a Spanish request would see "Italy bear the brunt of the cost". The country's public debt had already gone up by 4pc as a consequence of the Greek, Irish and Portuguese bail-outs.
He also repeated that Italy was not planning a similar request for aid. He said:
The country's finances are solid. In 2013 we will meet the goal of a balanced budget adjusted for the (economic) cycle. And this without aid of any sort.
Italy's Vittorio Grilli, pictured here with Italian premier Mario Monti, insisted that the country's finances were "solid".
08.50 So will they or won't they? Speculation this morning is that Spain is preparing a bail-out request for November. A source told Reuters:
We're moving, we're taking steps, we're preparing it, things will crystallise in November.
Another told the newswire:
If I had to bet, it would rather be in November than in October, if ever. Then it would be a package - you would have Greece and Cyprus and Spain. I think not Slovenia.
The is because the Germans and others do not want to go many times to national parliaments and have painful, tortuous debates there.
08.45 Good morning and welcome back to our live coverage of the eurozone debt crisis.
Debt crisis live: archive
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