Monthly Archives: February 2014
Two simple NK pictures
I'm staying out of this argument. But I can't resist a challenge to show the New Keynesian model in pictures, with indifference curves, production functions, and budget lines. I can't do it in one picture. I need two.
Capital income in a recession
Profits and income from capital are not the same thing, though they are mixed together in the national accounts. (Paul Krugman has made this point before.) I work through some simple examples with sticky prices and/or sticky wages, where income from capital always falls in a recession caused by tight monetary policy. [I add an […]
Chris House is a Market Monetarist!
OK, maybe I exaggerate a little. But he's at least halfway there. One of the key points that Market Monetarists (Scott Sumner especially) keep making (and that keeps getting ignored) is that low (nominal and real) interest rates are not a sign that monetary policy is loose, but are a consequence of monetary policy being […]
Visioning the Surplus
The Federal government is poised to move into a period of fiscal surplus. According to the 2014 Federal Budget, the 2014-15 fiscal year will see a 2.9 billion dollar deficit (which could actually be a small surplus due to the 3 billion dollar contingency fund). After that, 2015-16 will see a 6.4 billion dollar surplus […]
Relative price shocks, price-level shocks, and who moves first
Suppose a real shock hits the economy. It affects relative prices. The prices of the green firms must rise relative to the prices of the red firms. The prices of the red firms must fall relative to the prices of the green firms. Same thing. But which happens? Do the green prices rise, or do […]
Scotland, Quebec, and currency union
I don't have anything to add to this, except to express my relief that the Permanent Secretary to H M Treasury (UK) said what needed to be said, especially given the dreadful experience of the Eurozone currency union (which is not over yet in my opinion), and that Canadians should read it. (H/T David Smith).
The 2014 Federal Budget
With so much commentary out there on the 2014 Federal Budget, there is probably not much left to contribute but here are a couple of thoughts.
Collateral and the money supply
I sketch a simple model where a shortage of collateral reduces the money supply, and makes the Cash-In-Advance constraint binding in an otherwise New Keynesian model. This post is a followup on my previous post on "negative money".
Is Ottawa Shortchanging Ontario? You Decide.
Well it is federal budget time once again and the inevitable political opera around transfer payments is in progress. This time, Ontario is feeling shortchanged and wants Ottawa to restore the 641 million dollar cut in transfer payments it is slated to receive for the 2014-15 fiscal year. Ontario Finance Minister Charles Sousa argues that […]
Tiff Macklem, retail competition, flexible IT vs NGDPLT
Tiff Macklem is senior deputy governor at the Bank of Canada. On Friday, Tiff gave a speech on "Flexible Inflation Targeting and 'Good' and 'Bad' Disinflation". The Bank of Canada is not like the Fed; Tiff's speech reflects the Bank of Canada view. The picture below reflects what I think Tiff might be saying:
Worthwhile Canadian Initiative 
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