Category Finance
Coloured sunspots and shells
This post is a sketch of a model of secular stagnation; and of bubbles that burst and get replaced by different bubbles. I don't formalise the model mathematically, because I don't have a comparative (or absolute) advantage at that sort of thing. But I think it could be formalised fairly easily. Start with a model […]
Another weird monetary world
Imagine you lived in a world where the central bank issued two types of money: paper money; and electronic money. If you want to pay for something with the paper money, you have to physically transfer it. If you want to pay for something with the electronic money, you just need to tell the central […]
Is the macroeconomic importance of finance an artefact of current monetary policy?
Suppose the Bank of Canada pegged the price of gold. If an increased demand for gold caused a recession, would macroeconomists be told they needed to pay more attention to the theory of the demand for gold? Or would the Bank of Canada be told to change its policy? Suppose the Bank of Canada pegged […]
When Will Low Interest Rates End?
A recent piece in the Financial Post titled “How many times can economists cry wolf about interest rates” caught my interest because I – like many economists in Canada – have been expecting interest rates to eventually start to rise and yet they do not. So when will Canadian interest rates start to go up? […]
Nominal-loss-aversion and its consequences
I understand risk-aversion. The assumption of diminishing marginal utility of consumption makes sense. And if you have diminishing marginal utility of consumption, you will prefer an investment with a certain return over an investment with the same expected return but a positive variance. Loss-aversion is harder to understand. You need to assume the utility function […]
Banks with 100% capital ratios?
Why can't all banks be as safe from insolvency as the Bank of Canada? I put a question on my final exam: "What is a bank? Should banks have legally required minimum reserve ratios? What about 100% reserve ratios? Should banks have legally required minimum capital ratios? What about 100% capital ratios?" I wanted the […]
Does finance need money/macrofoundations?
(I'm not 100% happy with this post. Too much emphasis on interest rates, for one thing. I sat on it for a few days, but have decided to post it anyway. Because I like my question better than I like my answer. So let's see your answers.) David Glasner has a very good post: Does […]
We know the economy needs a bubble; but how big?
This isn't as clear as I want it to be. Sorry. Mr Ponzi issues a financial asset. Assume that the demand to hold that asset grows at the same rate as GDP. If people are willing to hold that asset at a rate of return less than the growth rate of GDP, Mr Ponzi can […]
Federal Transfers, Equalization and Ontario’s Cries for Reform
Transfers and equalization often flare up in Canadian policy discussions with the cry that there is a need for reform. A recent Cohn column in the Toronto Star on Ontario’s economic stall concluded “Outdated equalization and transfer payments cry out for reform, but will likely continue to bleed Ontario’s taxpayers of about $12 billion a […]
The Economics of Rob Ford
The dramatic municipal opera currently underway in Toronto over embattled Mayor Rob Ford is fascinating for those of us who live in small hinterland “non-world class cities” that are supposedly devoid of the sophisticated political leadership enjoyed by cities like Toronto. The enduring popularity and populism of Rob Ford in Toronto despite his outrageous behavior […]
Worthwhile Canadian Initiative 
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