Monthly Archives: January 2009
Three reasons to believe the Canadian fiscal multiplier might be bigger than we think it is
1. The Short-Run Aggregate Supply curve is not vertical, otherwise fiscal policy (or any change in Aggregate Demand) would have no effect on real output (except via supply-side effects). But the SRAS curve is probably not linear either. It is plausible to assume that the SRAS curve gets steeper as output increases, because as output […]
Canada and the Eurozone: a comparison
I keep an eye on various European economics blogs (especially VoxEu and Maverecon). We often compare Canada and the US. I want to compare Canada and the Eurozone, just for a change. I want to revisit the Optimal Currency Area question, in the light of the financial crisis. The Eurozone is like Canada would be, […]
Default, expected default, and wealth
Actual default on existing debt reduces aggregate wealth a bit; expected default on existing debt reduces aggregate wealth a bit; but expected default on new debt reduces aggregate wealth a lot. Redistribution of wealth from creditors to debtors may reduce aggregate wealth a lot. Default is a symptom of that problem.
One useful insight from Austrian business cycle theory
I am not an Austrian, but… Three decades ago (ouch!) I made a valiant effort to understand Austrian business cycle theory. I failed. I wanted to believe it, because I found the existing theories (Old Keynesian or New Classical) unsatisfactory. But I couldn't get it to make sense.
The changing game between monetary and fiscal authorities
Who's in charge of aggregate demand? Monetary policy affects aggregate demand; fiscal policy affects aggregate demand. How the monetary authority acts may depend on how it expects the fiscal authority to act, and vice versa. What happens depends on the rules of the game they are playing. The rules of the game have changed in […]
Loanable Funds and Liquidity Preference; DeLong vs. Fama
This is a (probably hopeless) attempt to clarify the debate between Brad DeLong and Eugene Fama over whether an increase in government spending, financed by borrowing, will increase aggregate demand. There's something important that's missing from the debate: the rate of interest; and money.
Employment in the current and in previous recessions
Alex Tabarrok at Marginal Revolution has posted a graph comparing the decline in US employment during the current recession with what happened in the past, and Menzie Chinn at Econbrowser has offered a similar graph for industrial production. At first glance, these graphs seem comforting: the current experience seems to be following a moderate course, […]
A request for some Bayesian assistance
Calling all Bayesians! I need your help on two questions: first I want you to check something I said; second I want you to check something that Bryan Caplan said. In September 2008, Bryan Caplan issued a challenge (revisited yesterday) for people to say in advance how they would update their prior belief that the […]
Pump-priming and the Keynesian Laffer curve
Update: since what I thought was my most controversial post ever has drawn precisely zero comments, let me re-title it: "A fiscal stimulus can more than pay for itself". The English language is full of dead or dying technological metaphors. How many people have ever primed a pump or kick-started a motorcycle? (I'm old enough […]
Probably not the best stimulus proposal I’ve seen so far
The Quebec government released an economic statement thingy (pdf) today, announcing six measures to counter the recession. Here is number five: [W]e are acting on our commitment to raise the minimum wage to protect thepurchasing power of low-wage workers. The minimum wage will be raised by 50cents an hour next May 1, bringing it to […]
Worthwhile Canadian Initiative 
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