Author Archives: wciecon
The 45 degree line means Y=min{Yd,Ys}
(I'm disagreeing with Roger Farmer on the interpretation of the 45 degree line. I say the 45 degree line is not a supply curve. This post explains what I think it is.) Here's the Keynesian Cross diagram: How should we interpret the green 45 degree line?
Taxation and Growth: A North American Cross-Border Comparison
My last comparison of U.S. states and Canadian provinces with respect to their federal transfer revenue shares got me thinking about the other revenue sources and whether any relationship could be found between economic growth and revenue composition. Income taxation is supposed to have incentive and distortion effects on saving, risk taking and labor supply […]
Fiscal Federalism: A Cross-Border Comparison
As a federal country, one of Canada’s hallmarks is a well-developed system of intergovernmental transfers. Indeed, we often remark that Canadian provinces are dependent on federal transfers for large chunks of their spending and there is some debate over whether Canada’s provinces should engage in more own-source revenue effort rather than plead for more transfers. […]
Swapping the assignment of targets to instruments
Before leaving on his pilgrimage, the King appoints two ministers. He gives the first minister control of instrument m, and tells him to set m so that the target variable M is equal to the target M*. He gives the second minister control of instrument f, and tells him to set f so that the […]
The anti-NK model and minimum wages
I present a simple model that has exactly the opposite predictions to the standard New Keynesian model: if the central bank sets the nominal interest rate too high (too low), that will cause an increase (a decrease) in output and employment. If you think that an increase in the minimum wage will cause increased employment, […]
International Employment Update: U.S. Resilience and Australian Exceptionalism
I thought it was time for an updated look at employment creation in the advanced economies given that we are now at just over five years since the 2008-09 Great Recession that walloped world economies. I’ve taken the IMF World Economic Outlook Database employment numbers for the period 2007 to 2013 to get employment levels […]
A simple New Keynesian brain-teaser
Update: I sketch my own answer in the comments below. This is a question for all students of New Keynesian macroeconomics. I mean "students" in the sense of "those who study", so that includes the profs too. It is a very basic question. There is no fancy math to fool you. If you cannot answer […]
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 […]
Worthwhile Canadian Initiative 
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