Category Finance
Who would ever lend to an FTPL government?
Think back to philosophy class: Would you ever believe the promise of an Act-Utilitarian? No. An Act-Utilitarian will perform action A if and only if action A will maximise the sum of expected present and future utilities. His past act of having promised to do A is not a reason for the Act-Utilitarian to perform […]
Currency is alpha; bonds are beta
If you understand the title you understand the post. It's obvious really. Betas peg their exchange rate to alphas; alphas do not peg their exchange rates to betas. Beta's promise to redeem their liabilities for alpha liabilities at a fixed exchange rate; alphas make no such promise the other way. So alphas lead and betas […]
The degeneracy of FTPL
Consider a corporation that earns a flow of (real) profits S(t). Assume for simplicity the corporation finances itself by issuing only shares (it does not issue bonds). Let the stock of shares be M(t). Let the reciprocal of the share price be P(t), so the share price is 1/P(t), and so the total market value […]
My failed attempt to model longevity, retirement, and secular stagnation
We don't normally publish our failures. But perhaps we should. Because we can (sometimes) learn as much from our failures as from our successes. Academic economists spend a lot of time trying to model things. One reason we do this, and a good reason for doing this, is as a check on our imperfect intuitions. […]
Bond Finance and the Great Depression
Attending the Social Science History Association Meetings in Toronto this weekend provided as usual an opportunity to take in new papers and ideas, digest them and then think about what further insight they might add to our knowledge of past economic events. One such paper was Richard Sutch’s (University of California) “Financing the Great War: […]
Will somebody please think of the Data Generating Process!
Or: "Should Finance People be allowed out unaccompanied by a macroeconomist?". If the central bank is doing its job right, monetary policy ought to appear to be irrelevant. The Economist says (HT Mark Thoma) "Interest rates do not seem to affect investment as economists assume", and this means that monetary policy is irrelevant. (Let's just […]
Another Portent of a Looming Federal Election
It turns out that that Federal Finance Minister Joe Oliver is reported as saying that “the government can shrink the national debt by growing the economy and ‘without actually paying off any debt’.” At the same time, as part of pre–budgetary consultations with the finance committee, the Conference Board of Canada, the Canadian Taxpayers Federation […]
Retirement, saving, and the rate of interest
I want to sketch out a very simple model of the effect of retirement on saving and on the rate of interest. Because I think that saving for retirement is the biggest motive for saving, and that the increase in the length of time people are retired is having a big effect on the rate […]
The orthodox New Keynesian position on liquidity preference and loanable funds
I am not an orthodox New Keynesian macroeconomist (ONKM), but I can pretend to be one. Q: What determines the rate of interest? ONKM: "The central bank sets the rate of interest." Discussion: the above answer is a pure liquidity preference theory of the rate of interest. By having a perfectly elastic money supply curve, […]
Worthwhile Canadian Initiative 
Recent Comments