Monthly Archives: December 2008
Multipliers in a liquidity trap; fixed vs. flexible exchange rates. Disagreeing with the IMF.
In a liquidity trap, interest rates are stuck at zero, so increases in government spending do not raise interest rates. What are the government spending multipliers in a liquidity trap? Closed/open economies; fixed/flexible exchange rates.
Some simple arithmetic of Canadian debt and deficits
Various numbers for projected deficits have been reported recently. This post tries to put those numbers into perspective.
Buiter, Krugman, Steinbrueck, free-riding, and the exchange rate
Warning: this post is difficult, and I'm not at all sure I've got it right. But I'm going to post it anyway. What determines the exchange rate in a liquidity trap? [Prerequisite: second year Open Economy Macro] In case you hadn't noticed, there's a small war going on, with Willem Buiter (UK) and Paul Krugman […]
Let’s cut to zero too
OK, the US Federal Reserve has now cut interest rates essentially to zero. I think the Bank of Canada should now do the same.
But what would happen to the debt if we didn’t run a deficit now?
If the government runs a deficit now, the debt-burden on future taxpayers will increase. But maybe the debt-burden would increase even more if we didn't run a deficit now? The proper way to handle policy questions (in economics, or anywhere) is to compare what will happen with the proposed policy to what would happen under […]
On the economics of the MSM print media
Paul Wells, Andrew Potter and Dan Gardner have posted recently on the plight of the economic model of MSM journalism. What will happen to popular discourse if people stop buying newspapers and magazines because pretty much everything that's in them is available for free on the internet? Well, let's consider what's at stake. From page […]
Trading volume, liquidity crises, Carl Menger, and “off-the-run” bonds
An asset which becomes less liquid (the costs of trading it increase) will be traded less frequently. If an asset is traded less frequently, it will become even less liquid….. An asset which becomes more liquid (the costs of trading it decrease) will be traded more frequently. If an asset is traded more frequently, it […]
The Bank of Canada’s Financial System Review
The Bank of Canada published its December 2008 Financial System Review yesterday. I spent a few hours reading it through (something I had never bothered to do in the past). Some observations:
Conflicting signals on the state of Canada’s housing market
Something we've been looking for is evidence of an eventual decline in the Canadian housing market. Today, StatsCan announced that new housing prices fell in October. Also today, the CMHC announced that rental vacancy rates were down and that average rents were up from October of last year. A softening of housing prices is to […]
Why are forecasters predicting a mild recession for Canada?
Shock Minus Control notes that Canadian forecasters in both the public and private sector are predicting a short, mild recession and he provides a good graph that puts these forecasts in historical perspective. In addition, IMF and OECD forecasts for Canada are more optimistic than for most of the other developed countries. But how and why can […]
Worthwhile Canadian Initiative 
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