Category Finance
Switzerland as a closed-end mutual fund with a country attached
You can't say much beyond a snappy title in 140 characters, so I thought I should write a short post explaining what I meant. You can, if you want, think of (central bank) money as shares in a closed-end mutual fund. The mutual fund has assets, that are mostly financial assets. The returns from those […]
Secular stagnation and Mutual Fund Marxism
Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised a higher rate of return than any alternative asset. The government can do this, because it has the power to tax. Everybody prefers holding that government-issued financial asset to any other asset. There would be an excess demand for that government-issued […]
One awkward question about Stephen Poloz’s speech (on Integrating Financial Stability into Monetary Policy)
Suppose the Bank of Canada were following a 5% NGDP level-path target. And suppose that actual NGDP was on target, and was expected to remain on target in future. And suppose you were Governor, and one of your advisors gives you some important news. Financial markets are in a bubble, so the prices of financial […]
Countries as clubs: open borders and debt/GDP ratios
Don't think of a country as an area of land. Think of a country as a club, to which a group of people belong. Nomadic tribes were not attached to any particular area of land. Settled agriculture on scarce land is a recent and contingent fact. Clubs provide club goods to their members. Club goods […]
Could increasing monopoly power explain declining interest rates?
Suppose that monopoly power (as measured by the markup of price over marginal cost) has been increasing over time. What effect would that increase in monopoly power have on the equilibrium (real) rate of interest? TL:DR the sign is right, but the magnitude looks far too small.
Dumb questions about predictability of stock market returns
Something I always wondered about, but was too scared to ask. Noah Smith's (quite reasonable) post nudges me into asking it. Even if everyone is perfectly rational, where is it written that stock market returns cannot be predictable? The stock market rate of return is a rate of interest. Where is it written that changes in […]
A question for beta bankers
This post covers the same ground as my previous post, but it's written for a different audience. It's written for those people who approach monetary policy from a banking/finance perspective. Suppose you are running a commercial bank. Let's call it "BMO". And let's simplify massively. On the asset side of your balance sheet you have […]
Interest rate control as beta-anachronism
I want to make a minor point to follow up on something important that David Glasner said: "Nevertheless, our basic mental processes for understanding how central banks can use an interest-rate instrument to control the value of money are carryovers from an earlier epoch when the value of money was determined, most of the time […]
Panglossian expectations and the Phillips Curve
[This post is unfinished. I was writing it yesterday, thinking it would work out, then I realised there was a problem. I slept on it, but can't see any obvious resolution. But sometimes we learn from seeing that things don't work out the way we thought they would. So I'm posting it anyway. I will […]
The Great Convergence: Federal Transfer Revenue Shares 1980/81 to 2013/14
Well the Council of the Federation began meeting in St. John’s yesterday and given we are on the cusp of a federal election, there will no doubt be a targeting of Ottawa’s role in provincial finances. Naturally, there will be some lamentations about the Prime Minister’s absence – once again – from this annual meeting. […]
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