Author Archives: wciecon
Cash-in-advance constraints and modeling liquidity traps
It was good to see Paul Krugman's response to my previous post. We agree more than we disagree, I think. We need to move outside the Neo-Wicksellian perspective if we want to look at monetary policy where short-term interest rates are already at zero. You can't use a model which contains i and does not […]
The return of Monetarism
As interest rates approach zero, and central banks look at "unorthodox" monetary policies, the Neo-Wicksellian perspective on monetary policy has switched to a blank screen. We are witnessing the return of Monetarism. That's the main reason why economists find it hard to think about unorthodox monetary policies. The dominant Neo-Wicksellian paradigm which fills our heads […]
Who will buy the bonds? Eurozone edition
This is a followup to my previous post "Who will buy the bonds?". It is also a followup to my January 20th post "Canada and the Eurozone: a comparison". The main theme of that second post is that the Eurozone is like Canada, only without the Federal government of Canada. Eurozone countries are like Canadian […]
Might fiscal policy fail to increase aggregate demand?
Yes, it might fail. Economists ought not be confident enough in our knowledge of how the economy works to say they are certain that a temporary increase in government spending will definitely increase aggregate demand. We just aren't that good (as if that needed saying). Here is one reason why it might fail. I think […]
Who will buy the bonds?
"The government needs to sell bonds to finance an expansionary fiscal policy. But who will buy the bonds? What happens if nobody wants to?" What we ought be be concerned about is the exact opposite. The fiscal policy will be more likely to succeed if people do not want to buy the bonds.
The progressive politics of pricing publicly-provided products
Whenever I make the points summarised in this post, someone invariably counters with the following median-voter argument: A policy in which only low-income households benefit will not command majority support. Making the program universal will ensure a more stable electoral base. This argument is not without merit, and it's pretty convincing in certain contexts. But […]
The perils of pricing publicly-provided products
One of the more resilient errors in policy analysis – in Canada, anyway – takes the following form: a) Public goods should be provided at zero price by the government. b) Therefore, goods provided by the government should have zero price. The former assertion is correct, but b) is a non sequitur: not all publicly-provided […]
Does the public demand for lower interest rates cause higher interest rates?
I read this in the Globe and Mail this morning. I interpret the argument to be that a cut in the Bank of Canada's overnight rate would lower the spread between borrowing and lending rates at the commercial banks, and so cause a decline in banks' profits. This argument reminded me of two previous posts […]
What next for the Bank of Canada?
The Bank of Canada currently sets the overnight rate at 1%. Markets expect it to cut by about 50bp on Tuesday. I think it should cut to zero (or 0.25%, which is effectively zero, given the traditional spreads). I thought it should cut to zero back in December. But if it does cut to zero, […]
Can Canada recover alone? Why not, exactly?
If Canada gets its macroeconomic policies right, is it possible for Canada to recover from the recession, even if the rest of the world does not? The same question could be asked for any individual country. And if not, why not?
Worthwhile Canadian Initiative 
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