Category Finance
House prices “bubbled” because Turgot’s land beats Samuelson’s “money”
This post won't be as clear as I want it to be. I'm trying to get my head straight on something. Sorry. Why are real interest rates positive? Turgot's answer was "Well, suppose they weren't, and never would be. Then the price of land would be infinite, because the present value of the rents would […]
What determines long run private debt/GDP ratios?
Are you concerned about high and rising private debt/GDP ratios? Then look at this World Bank data, and you will get a whole new perspective on the question. Would you feel less worried if Canada had the same ratio as Afghanistan? You will see massive cross-country differences in private debt/GDP ratios. The ratios range from […]
Pictures of adverse selection in an insurance market, with and without death spirals
This is a simple model, with diagrams, of adverse selection in an insurance market. It's mostly for teaching purposes. (Adverse selection is currently very topical in the US, but it's a perennial problem that applies to all forms of insurance markets, and many other markets too.) I don't know if these diagrams are in any […]
Asset prices and the retirement revolution
Sometimes I have to remind myself that the sort of short run macro I do doesn't really matter much. Things like the recent global recession don't make much difference in the big scheme of things. So I'm writing this as an antidote to my own narrow perspective. Or, maybe I'm just a typical boomer seeing […]
Depository vs non-depository financial institutions?
Today's dumb question(s) from teaching monetary and financial institutions: 1. What is the difference between a "depository" and a "non-depository" financial institution? 2. Why is that difference economically important?
The best cure for “easy money” is easier monetary policy
Reading Bank of Canada Monetary Policy Reports doesn't normally annoy me, but reading this latest one did. Specifically, this bit: "Although the Bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance. However, the Bank […]
Gross Saving: A Comparison
I’m teaching public finance this term and just finished a discussion of the economic effects of income taxation on saving using a simple two period model of inter-temporal consumption. I rounded out the discussion with a comparison of personal savings rates between Canada and the United States and how their savings rates have converged since […]
Debt, Default and Leadership
Well I honestly thought the US debt ceiling crisis would be resolved by today given the past examples of American political theater when it comes to fiscal issues. As I write this morning, it seems that the US is heading towards defaulting on some of its debt interest payments. It appears to me that the […]
Private debt, public debt, and continuity
Let me try it this way. Here's Brad DeLong: "So, by continuity, somewhere between policies of austerity that that produce deflationary depression due to an excess demand for safe assets and policies of fiscal license that produce inflationary boom caused by an excess supply of government debt, there must be a sweet spot: enough new […]
If banks bought houses
One more for the Banking School. This is a thought-experiment to help us clarify our thinking about banks. If banks bought houses, instead of lending people the money for people to buy houses, what would be different? Not much. But we students of money and banking would avoid some common mistakes, like confusing the demand […]
Worthwhile Canadian Initiative 
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