Monthly Archives: February 2016
Does saving count towards GDP?
Here's a fun one. (OK, I think it's fun, anyway.) Especially for those who teach macro. A first year student emails me. Paraphrasing, he asks "For a closed economy, we know that national saving equals national investment, and investing in newly-produced goods counts towards GDP. And "saving" means anything we do with our income other […]
ISLM pictures with interest on money
By popular request (well, David Andolfatto asked, but I think he's right to ask) I'm drawing a picture to illustrate my previous post on the distinction between the interest rate Rb you get paid for lending money and the interest rate Rm you get paid for holding money. But first I need to take a […]
Interest on holding money vs interest on lending/borrowing money
Prerequisite: intermediate macro. I reckon some people might be getting those two things muddled. The difference matters. Actually, the difference is the only thing that matters. It's the spread between those two interest rates, not the levels of those two interest rates, that matters for Aggregate Demand. Simplify massively. There are two rates of interest. […]
Focal points, and how beta money becomes alpha money
This is my response to Tony Yates' lovely fairy tale about escaping the zero bound. There is a Nash equilibrium in which each individual tosses a coin to decide which side of the road to drive on that day. But it's not a stable Nash equilibrium, in the old-fashioned sense of "stable". If I switch […]
Some thoughts on banning 100% reserve banking
In the olden days, economists would argue about whether fractional reserve banking should be banned, and 100% reserve banking should be mandatory. In today's mirror world, economists are arguing about whether fractional reserve banking should be mandatory, and 100% reserve banking banned. Or at least strongly discouraged. What JP Koning calls "cash escape inhibitors" (designed […]
Who chooses to become Canadian?
Immigrants to Canada can, after living here for four years as a permanent resident, opt to become naturalized Canadian citizens. Most immigrants opt for naturalization – but some cling to their original citizenship, even after living in this country for thirty, forty, fifty or more years. The graph below shows the proportion of immigrants choosing to become […]
Negative interest rates, hot potatoes, and banks
Let's start out very simple. The central bank issues banknotes, and those banknotes are the only type of money that people use, to buy and sell everything else. It really doesn't matter if people keep those banknotes in their pockets or if they keep them in a shoebox at the central bank with their name […]
Targeting, Tautologies, and Double Divine Coincidence
For Tyler Cowen. I think I see his point, and I've been trying to get my own head around this question. 1. Suppose I live in a world where the central bank targets the price level, as measured by the GDP deflator. And suppose I believe the central bank should target Nominal GDP instead. Given […]
Anti Urban Economics
I'm just throwing this out there. Read at your own risk. I don't know what I'm talking about (even more than usual). I'm just thinking out loud, and being ornery. I will explain where I'm coming from after I've made my point. There's a difference between "strategic complementarity" and "positive externalities". Strategic complementarity is what […]
Importing people is not like importing apples
Remember all the old Canadian nationalists? The ones who said that the (Canada-US) Free Trade Agreement would destroy Canadian culture? The ones we economists defeated back in the 1988 election? I'm beginning to wish we hadn't defeated them quite so thoroughly. They were wrong. But they sorta, kinda, did have a point. Social/economic institutions are […]
Worthwhile Canadian Initiative 
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