Category Fiscal policy
New Keynesian multipliers, and the expansionary effects of falling government spending
Microeconomic models usually have negative feedback. Take a simple demand and supply model. Suppose there is a shock that causes the demand for apples to increase by 100 apples. That creates an excess demand for apples that causes the price to rise, that causes the quantity demanded to fall. If the supply and demand curves […]
The Incredible Shrinking Federal Government
The Federal government will be releasing their fall economic update today and so this is as good a time as any to review Canadian federal government finances. Contrary to my earlier expectations, I guess the Federal government may indeed be about to balance its budget by 2015/16 judging by early press reports regarding today’s Federal […]
Why Ontario Will Not Be Balancing the Budget Anytime Soon
Ontario released its fall economic statement this week and the government insists that it will be balancing the budget by 2017-18. From an actual deficit of 9.2 billion dollars for 2012-13, it is anticipated that the deficit will be 11.7 billion dollars in 2013-14 and will go down to 3.5 billion dollars by 2016-17. Yet, […]
Forward guidance and the term structure in New Keynesian models
Take a standard New Keynesian macroeconomic model, where the central bank sets the one-period interest rate. Now let's hit it with an unexpected shock. For simplicity and concreteness, let the shock be a reduction in government spending that will last for n periods, after which government spending will return to normal. So government spending was […]
What’s a Billion?
I have finally been able to catch my breath this week and ponder the situation in Ontario over the report on the final cost of cancelling two natural gas electricity plants in the Oakville-Mississauga area ostensibly in order to retain seats for the Ontario Liberal government given local opposition to the plants. The Ontario auditor […]
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 […]
Twin debt equilibria, and waiting for the sunspot
Paul Krugman, responding to Simon Wren-Lewis, wants a model to better articulate Ken Rogoff's fears of debt and deficits (pdf). Fair enough request. I can't give Paul a fully worked-out formal model, but I think I can give him a sketch of what such a model would look like. (Update: If Paul likes, he could […]
Fiscal Clout and Federation Redesign
The Parliamentary Budget Office has issued a very pleasing report on federal fiscal sustainability but the flip side is that the provinces and territories are now not fiscally sustainable because of their rising health costs and the federal fiscal gap created by the change in the Canada Health Transfer escalator. According to Andrew Coyne, the […]
Old and New Keynesians and self-equilibration
As I have argued before: "Does the macroeconomy self-equilibrate?" is a stupid question, because the answer depends on the monetary policy being followed. Your answer also depends on your model of the economy. And that's what I want to look at here. "Compare and contrast Old Keynesian and New Keynesian views on whether the economy […]
Paul Krugman, Ricardian Equivalence, and the Pigou effect
If I produce a car, and sell it, and undertake no obligation to service that car (by changing the oil), and undertake no obligation to buy back that car, and if nobody can sue me if that car goes wrong, then that car I have produced and sold is not one of my liabilities. That's […]
Worthwhile Canadian Initiative 
Recent Comments