Category Fiscal policy
Why failed bond auctions are good news
Suppose an increased supply of government bonds to finance deficit spending were met with an increased demand for government bonds from the private sector, so that interest rates stayed the same, and the bond issue were fully subscribed. That is exactly what would happen for a bond-financed tax cut under full Ricardian Equivalence, for example. […]
“Failed” government bond sales?
The UK government "failed" to sell all the bonds it wanted to sell to finance its deficit spending. The story is here. And here. There are many aspects of this story I find puzzling.
Economic Impact Assessments, and fiscal policy: the fallacy of decomposition
Some extra money from the last Federal budget went to fund new projects at universities. As part of its application for funds, each university must say how it plans to spend the money, and also do an "Economic Impact Assessment". I have been called in to help. I know little about EIA. I remember a […]
Who will buy the bonds? Eurozone edition
This is a followup to my previous post "Who will buy the bonds?". It is also a followup to my January 20th post "Canada and the Eurozone: a comparison". The main theme of that second post is that the Eurozone is like Canada, only without the Federal government of Canada. Eurozone countries are like Canadian […]
Might fiscal policy fail to increase aggregate demand?
Yes, it might fail. Economists ought not be confident enough in our knowledge of how the economy works to say they are certain that a temporary increase in government spending will definitely increase aggregate demand. We just aren't that good (as if that needed saying). Here is one reason why it might fail. I think […]
Who will buy the bonds?
"The government needs to sell bonds to finance an expansionary fiscal policy. But who will buy the bonds? What happens if nobody wants to?" What we ought be be concerned about is the exact opposite. The fiscal policy will be more likely to succeed if people do not want to buy the bonds.
Can Canada recover alone? Why not, exactly?
If Canada gets its macroeconomic policies right, is it possible for Canada to recover from the recession, even if the rest of the world does not? The same question could be asked for any individual country. And if not, why not?
I hope Hillary fails
Nothing personal, but I just do not understand why she is asking China to buy more US treasuries. This just doesn't make any sense to me. She ought to be doing the exact opposite. Can someone explain it? Regardless of the ultimate cause of the crisis (and China and perhaps Japan saving too much and […]
At least we don’t have the Gold Standard to worry about
Will this crisis be as bad as the Great Depression of the 1930's? One important difference is that we don't have the Gold Standard now. That's one good reason for optimism.
Sales taxes, other taxes, expected deflation, and Calvo price-setting
Gauti Eggertsson has an important ("preliminary and incomplete") working paper. It has been discussed by Mark Thoma and Justin Wolfers. The main argument is that tax cuts could cause expected deflation, which would raise real interest rates if nominal rates are stuck at zero, and this would reduce aggregate demand and output. Tax cuts are […]
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