Monthly Archives: March 2010
Why the LM curve is (usually) vertical, and the AD curve (usually) horizontal
Short version: because the Bank of Canada (or any inflation-targeting central bank) makes the LM curve vertical and the AD curve horizontal. Long version below the fold:
A bad argument against lower corporate income tax rates
Here it is: The case for corporate tax cuts is that they supposedly prompt businesses to invest more in Canada. Critics have countered that an unconditional gift to those corporations which are already profitable will not necessarily increase investment. A third possibility that has received little attention helps explain why corporate tax cuts are so […]
The Bank of Canada and the exchange rate: the facts have changed, and so has its views
You will remember that the dollar went from 0.86 USD to 0.97 between July and October of last year, and that the question of what to do about the appreciating CAD took up a lot of our attention in the fall. (Sadly, much of my attention was diverted to how badly the issue was covered […]
Putting the foreign-ownership cart ahead of the innovation horse
David Olive gets things wrong in his column today. Foreign ownership is not to blame for low levels of productivity and innovation in Canada. A 2005 StatsCan study (pdf) found that "foreign-controlled plants are more productive than domestic-controlled plants" and "are also more innovative, more R&D intensive and use more advanced technologies." Protecting domestic managers […]
Taxation in Canada – Part II: Constraints Faced When Designing a Tax System
In Part I we saw that the goals of taxation were two-fold: to collect revenue for the government and to discourage certain activities. However, the government hoarding Jacques Plante as an Edmonton Oiler hockey cards in an attempt to reduce the after-tax income of rich-people is not aligned with our goals. If there were no […]
The Division of Labour between interest rate and exchange rate
Stephen's graphs show quite clearly that Canadian monetary policy must tighten before US monetary policy. I'm convinced. But what does monetary policy mean? In this context, I'm going to ignore other interpretations, and just focus on interest rates and exchange rates. What is the division of labour between increasing interest rates and appreciating exchange rates? […]
International reserves and involuntary borrowing
Borrowing is nearly always voluntary. Somebody might want to lend to me, but they can't force me to borrow from them if I don't want to. But there's an exception. A country that issues the reserve currency can be forced to borrow from other countries, if those other countries want to lend to it. This […]
A question for Canadian housing bubble theorists
I suppose that this really should be entitled "A question for Vancouver housing bubble theorists", because pretty much every 'Canadian housing bubble' story I've seen uses anecdotes from Vancouver. Here is the question: How do you get from a fall in Vancouver (or Canadian) house prices to a Canada-wide economic crisis? And no, you cannot […]
Taxation in Canada – Part I: What Are the Purposes of Taxation?
This is the first in a series of posts that will examine the tax system in Canada, from an economist’s point of view. If we better understand how the tax system works, we can find ways to improve it. It turns out that there are a number of ways the Canadian tax system can be […]
Net Import Quotas and Tariffs: China and Paul Krugman
Here's another way to think about what Paul Krugman is saying: it is as if China has a quota on net imports. An ordinary import quota means that the government places a ceiling on the value of imports. In this case, it's not a ceiling on gross imports, but on net imports (imports minus exports). […]
Worthwhile Canadian Initiative 
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