Monthly Archives: December 2008
Destroying Lemons (or at least locking them up in a “Bad Bank”)
In a previous post I built a toy model to explain how some assets going bad could reduce market liquidity and reduce the total value of assets by a multiple of the original loss in value. My model was of course based on Akerlof's famous "Market for Lemons", but I introduced a demand for liquidity […]
Why did Liquidity Fall? How does Illiquidity affect asset values?
In a previous post, I argued that assets became less liquid in the last couple of months, and that the fall in liquidity might have been a major cause of the fall in asset values. So, why did liquidity fall? There's a literature based on a model of informed traders, uninformed traders, and "noise" traders […]
The Globe and Mail succumbs to irrational panic
This is getting to be a problem. A few weeks ago, the Globe ran this story: Job cuts loom at Canadian firms: poll: More than one-fifth of Canadian employers plan to reduce their headcount in the coming year as the financial crisis forces companies to cut costs, a compensation planning survey showed Monday. Mercer's updated […]
Liquidity, Time Preference, Brad DeLong, and the missing $20 trillion
Brad DeLong has an excellent short essay on the financial crisis. Read it. I disagree with one part of it: Liquidity Discount: The cash flowing to capital arrives in the present rather than the future, and people prefer — to varying degrees at different times — the bird in the hand to the one in the […]
By Tuesday Morning, any proposed 0% Inflation Target will be dead
Before the financial crisis came along, the main question of Canadian monetary policy was whether to revise the Bank of Canada's 2% inflation target. Should the Bank target a lower inflation rate, like 1%, or even 0% inflation? Or should the Bank switch to a target path for the price level?
A new Canadian economics blog! A new Canadian economics blog!
I was getting all depressed reading this article: even after applying the rule-of-10, the Canadian economics blogosphere is woefully under-developed. But then I saw this in the comments here, which drew my attention to Shock Minus Control. It has three posts so far, and I count three graphs already.
ZIRP Deficits cause Crowding In of Investment, by reducing Deflation
I am going to make a very simple point, which has (I think) been missed in the current blog debate over whether deficit spending will crowd out or crowd in investment: deficits reduce expected deflation, which crowds in investment.
International coordination with ZIRP, and Functional Finance
"Deficits and debt don't matter, we owe it to ourselves; we should run as big a deficit as needed to get our country out of recession." "International coordination of fiscal policy is needed to make sure each country runs a big enough deficit to get the world out of recession." Your choice. One or the […]
The Detroit Three are asking $7.2b from Canadian governments. What will it buy?
Car firms seek at least $6b. The maximum in the story is 3.6 + 2.0 + 1.6 = 7.2b, and we can all be sure that they'll be back for more. According to the September SEPH data, there were 122k people employed in the motor vehicle parts and manufacturing sectors. The disaster we're trying to […]
Headline juxtaposition du jour: Canadian auto sector edition
Two items on my google news page: GM to lay off 700 more workers in Oshawa: General Motors of Canada Ltd. is laying off 700 more workers at its Oshawa, Ont., operations, the Canadian Auto Workers union said Friday. The layoffs at the car plant will take place in February. Further down: Toyota opens second factory […]
Worthwhile Canadian Initiative 
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