Category Fiscal policy
The Law of Reflux vs Helicopter Money
Let me start out with an extreme (and very silly) assumption, just so I can explain something simply. Assume that the demand for currency does not depend on the price level, nor on real income, nor on interest rates, nor on anything. It's just fixed. Every individual wants to hold exactly $100 in currency, no […]
Helicopter Money is small beer, and normal
Let's do a back-of-the-envelope calculation. Assume a 5% currency/Nominal GDP ratio. Assume the government/central bank wants to use helicopter money to permanently raise the level of NGDP by 5% above what it would otherwise be. So the stock of currency will be permanently higher by 0.25% of NGDP. And assume currency pays 0% interest, so […]
Democratic Helicopter Money and the non-observance of two counterfactual conditionals
I give my kids $100 and tell them to spend it not save it. 1. How can I tell whether my kids have really spent $100 more than they otherwise would have spent? Maybe they would have spent $100 anyway. 2. How can my kids tell whether I have really given them $100 more than […]
Fewer Fiscal Multipliers and more Clarity from the Bank of Canada
At the risk of being thought "cavalier", I don't like what Bank of Canada governor Stephen Poloz is reported as saying by Kevin Carmichael. Inflation targeting is supposed to be inflation forecast targeting. The Bank of Canada is supposed to do what is needed to ensure that its own internal forecast of future inflation (at […]
Fiscal Balance and Unemployment
As we all know, Canada will be running deficits well into the foreseeable future. Based on the figures from the 2016 Federal Budget, as a percentage of GDP Canada will see its deficit go from a surplus of 0.1% in 2014 to -1.5% in 2016 and then will range from a low of -0.6 percent […]
On Central Bank Lending to Government
The central bank prints money, lends it to the government, and the government sooner or later spends it (or uses it to cut taxes or increase transfer payments). There seem to me to be two views on this question that are equally daft: The Orthodox Daft View: "Central bank lending to government is a Bad […]
Helicopter Bonds as Qualitative Easing
Accounting can be fun. Helicopter Bonds is when the government prints some bonds and drops them out of a helicopter, so whoever picks up the bonds now owns them. It's identical to a bond-financed lump-sum transfer payment. It's identical to a bond-financed lump-sum tax cut (because only net taxes=taxes-transfers matter). The government borrows money from […]
Helicopter Money is Permanent
The shocks in a random walk process are permanent. That does not mean it is impossible for a positive shock to be followed by a negative shock. It does mean it is equally likely that a positive shock will be followed by a positive shock as by a negative shock. That's what I mean by […]
Federal Budget 2016: Quick Comment
Well it is Budget Day in Canada! Today’s federal budget is designed to address Canada’s uncertain economy by running large deficits to stimulate spending. Interestingly enough, the spending is somewhat more skewed towards people rather than things (infrastructure) which probably makes it a long term calculated pre-election strategy.
Chartalism and stock-flow consistency
[A post for Alex Douglas.] Here are two closely related questions, about Chartalism and the relation between stocks and flows of money. 1. How can intrinsically worthless bits of paper be a valuable asset that gets used as a medium of exchange? One answer is that the government forces us to pay taxes with those […]
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