Monthly Archives: January 2015
Why shouldn’t central banks buy risky (and illiquid) assets?
Like Greek bonds. Dumb question of the day. "Because risky assets are risky!" is not the answer. Other things equal, I would prefer to hold a safe asset than a risky asset, because I don't like risk. But other things are not equal, precisely because other people don't like holding risky assets either. So risky […]
Interest rates, exchange rates, and the Bank of Canada
Last week the Bank of Canada cut the overnight rate of interest from 1.00% to 0.75%. The exchange rate dropped 2 cents (about 2.5%) on the news. [Update: I forgot to add (because I figured Canadians already knew it, but then remembered others probably wouldn't) that the Bank of Canada has "done nothing" (with interest […]
Does monopoly power cause inflation? (1968 and all that)
Here's a question for you: Suppose there is a permanent increase in monopoly power across the economy (either firms having more monopoly power in output markets, or unions having more monopoly power in labour markets). Would that permanent increase in monopoly power cause a permanent increase in the inflation rate? Most economists today would answer […]
Ontario Finances Not Quite On Target This Year
As Ontario moves into budget season, it is instructive to take a quick look at the finances to date as revealed in the most recent Ontario Economic Outlook and Fiscal Review which was presented November 2014. Ontario’s aim then as no doubt now was to have the budget balanced by 2017-18. According to the Review, […]
The New Keynesian case for anti-inflation price controls
Take a very standard New Keynesian macroeconomic model. The two key ingredients (the only ones that matter for this post) are: monopolistically competitive firms; the Calvo Phillips Curve. In that model, if there are no macroeconomic shocks, the equilibrium level of output and employment is below the efficient level of output and employment. Because it […]
Negatively-valued (red) money in an OLG model
Samuelson 1958 (pdf) built an overlapping generations model in which intrinsically worthless green bits of paper have positive value. It is possible to build a mirror-image of Samuelson's model in which intrinsically worthless red bits of paper have negative value. My model actually makes more sense. Because any infinitely-lived productive asset, like land [or Frances' […]
There are no Friedmans today, except maybe Friedman himself
How come no economist on the right is asking "Where are the Galbraiths of yesteryear?"? It's because Milton Friedman won the debate, and John Kenneth Galbraith lost. Both Friedman (on the right) and Galbraith (on the left) were once leading public intellectuals and economists. I used to read them both. I wonder how many young […]
Is low inflation good news?
Suppose Statistics Canada reports the latest inflation data, and I am surprised to learn that inflation is lower than I had expected it to be. Or below the Bank of Canada's 2% target. Is that good news or bad news? For most of my life I would have said that is good news. "So inflation […]
When Tax Opportunity Knocks…
It looks like the respite from falling oil prices for consumers at the pump has finally attracted the attention of government. Ontario Premier Kathleen Wynne has been reported as saying Ontario will unveil a carbon-pricing scheme this spring. While the idea of a carbon tax in Ontario has been on the agenda since at least […]
A simple model where NGDP targeting beats inflation targeting
Tony Yates complains that Market Monetarists don't have a model to justify their support for NGDP targeting. So I decided to build him a little model. It's a cruddy little one-period model, and it's really only a sketch of a model, but any competent grad student should be able to do the math to finish […]
Worthwhile Canadian Initiative 
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