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The Knowledge Transmission Mechanism and Austerity

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  • Simon Wren-Lewis

Abstract

How do economic policy mistakes happen? One view is that policy makers are benevolent, and errors arise because economic theories are inadequate. Another is that policy makers pursue sectional interests that may have no relation to any academic consensus on good policy. This paper examines a third alternative: policy makers want to do the right thing (although they have political preferences), and the academic consensus is correct, but policy makers do not follow it because they rely on imperfect intermediaries. I use this framework to examine the global switch to fiscal austerity in 2010.

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  • Simon Wren-Lewis, 2015. "The Knowledge Transmission Mechanism and Austerity," IMK Working Paper 160-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:160-2015
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    References listed on IDEAS

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    1. David Colander, 2014. "The Economics of Influence," Journal of Economic Issues, Taylor & Francis Journals, vol. 48(2), pages 485-492.
    2. Lars Calmfors & Simon Wren-Lewis, 2011. "What should fiscal councils do? [Fiscal policy when monetary policy is tied to the mast]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 26(68), pages 649-695.
    3. Allard, Julien & Catenaro, Marco & Vidal, Jean-Pierre & Wolswijk, Guido, 2013. "Central bank communication on fiscal policy," European Journal of Political Economy, Elsevier, vol. 30(C), pages 1-14.
    4. Ansgar Rannenberg & Christian Schoder & Jan Strásky, 2015. "The macroeconomic effects of the Euro Area?s fiscal consolidation 2011-2013," IMK Working Paper 156-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Andrew Watt, 2015. "Quantitative easing with bite: a proposal for conditional overt monetary financing of public investment," IMK Working Paper 148-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Anat Admati & Martin Hellwig, 2013. "The Bankers' New Clothes: What's Wrong with Banking and What to Do about It," Economics Books, Princeton University Press, edition 1, volume 1, number 9929.
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