Category Finance
The simple money supply multiplier model and simple keynesian multiplier model
These two first-year textbook models — the simple money supply multiplier model; and the simple keynesian income-expenditure multiplier model — are formally identical. Translated into math, or game theory, you can't tell the difference between them. They contain exactly the same important insight: that what is true for the individual bank/household is not true for […]
What is going on with Canadian holdings of US Treasuries?
Regular commenter Kosta points us to this release of major foreign holders of US Treasuries, noting that Canadian holdings increased by a factor of six between December 2008 and December 2009 (from USD 7.8b to USD 48.3). That may be from a low base, but even if you scale the numbers by GDP – as […]
Fallacies of composition and decomposition: the supply of money and reserves
Does the supply of reserves matter? It certainly matters in the simple textbook ECON 1000 model of the money multiplier. But is that model fatally flawed, especially in the context of zero required reserves, and where central banks target an interest rate, so the quantity of reserves is demand-determined? Some people do argue that the […]
Infinite equilibrium asset prices?
Could there ever be conditions under which the equilibrium (real) prices for some assets are infinite? What would happen to an economy as it approached those conditions? Would those prices keep climbing to the skies heavens, then collapsing in waves of fear and panic? I'm trying to figure it out.
The supply and demand for (belief in) EMH
The extent to which the Efficient Market Hypothesis is true, and the extent to which EMH is believed to be true, are co-determined in simultaneous equilibrium by "supply" and "demand". Here's the picture:
Two perspectives on EMH: Biz Skool vs. Econ Dept
A theory is like a tool: whether it is right or wrong depends on what job you want to use it for. From the Econ Dept perspective, watching the players play, the Efficient Market Hypothesis makes a lot of sense. From the Biz Skool perspective, as one of the players playing, the EMH makes much […]
Don’t bubbles burst when pricked?
This is an inchoate post. That's not really an apology. Economists' ideas about bubbles aren't very clear. We can define a bubble theoretically, but we can't explain why they sometimes exist, sometimes don't exist, or why they sometimes start and stop existing. And we are not very good at identifying bubbles, even perhaps in hindsight. […]
Can ALL assets be overvalued?
I was going to make the title: "Can ALL assets be overvalued? The Economist (mag) vs. Cambridge(US) vs Cambridge(UK) vs. the Austrians", but it was be too long. I saw the cover of the Economist this morning. The usual lovely picture, plus the headline "Bubble Warning; Why Assets are overvalued". I think there's a theoretical […]
Finance as Magic
I can't get over the feeling that Finance is magic. We shouldn't be surprised if sometimes the rabbit doesn't come out of the hat, or comes out missing an ear or two. We should be surprised that the rabbit ever comes out of the hat at all.
Greece, the Eurozone, and Canada
I have been following the story about Greece. Like some other Eurozone countries, Greece has high deficit/GDP and debt/GDP ratios. Unlike Canada, but like Canadian provinces, Greece cannot print money. Eurozone countries are like Canadian provinces, as I argued in here back in January. But the Eurozone, unlike Canada, lacks a federal fiscal authority. The […]
Worthwhile Canadian Initiative 
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