Category Fiscal policy
Strengthen automatic stabilisers instead?
Suppose you believe that Canada (or the US, or wherever), needs a more expansionary fiscal policy now. If so, answer these questions: 1. Would you also recommend a more expansionary fiscal policy at some future time, if Canada ever found itself in the same situation as it is now? 2. If so, why would you […]
Federal budget speculation: Things you want to see and/or things you expect to see
The Conservatives will bring down their budget Tuesday, and we may as well join in the frenzy. Readers are invited to submit their proposals in the following categories (and are encouraged to add categories if the ones below don't fit): Good ideas that are likely to be part of the budget: Since the Liberals have […]
How do we reduce our debt/income ratios? The paradox of debt.
It's a common theme that the financial crisis was caused by too much debt, relative to our incomes. So if we want to get out of the crisis, we need to reduce our debt/income ratios. How? For an individual, the answer is easy and obvious: spend less, save more, and pay down debt. But for […]
Three reasons to believe the Canadian fiscal multiplier might be bigger than we think it is
1. The Short-Run Aggregate Supply curve is not vertical, otherwise fiscal policy (or any change in Aggregate Demand) would have no effect on real output (except via supply-side effects). But the SRAS curve is probably not linear either. It is plausible to assume that the SRAS curve gets steeper as output increases, because as output […]
Canada and the Eurozone: a comparison
I keep an eye on various European economics blogs (especially VoxEu and Maverecon). We often compare Canada and the US. I want to compare Canada and the Eurozone, just for a change. I want to revisit the Optimal Currency Area question, in the light of the financial crisis. The Eurozone is like Canada would be, […]
One useful insight from Austrian business cycle theory
I am not an Austrian, but… Three decades ago (ouch!) I made a valiant effort to understand Austrian business cycle theory. I failed. I wanted to believe it, because I found the existing theories (Old Keynesian or New Classical) unsatisfactory. But I couldn't get it to make sense.
The changing game between monetary and fiscal authorities
Who's in charge of aggregate demand? Monetary policy affects aggregate demand; fiscal policy affects aggregate demand. How the monetary authority acts may depend on how it expects the fiscal authority to act, and vice versa. What happens depends on the rules of the game they are playing. The rules of the game have changed in […]
Loanable Funds and Liquidity Preference; DeLong vs. Fama
This is a (probably hopeless) attempt to clarify the debate between Brad DeLong and Eugene Fama over whether an increase in government spending, financed by borrowing, will increase aggregate demand. There's something important that's missing from the debate: the rate of interest; and money.
Pump-priming and the Keynesian Laffer curve
Update: since what I thought was my most controversial post ever has drawn precisely zero comments, let me re-title it: "A fiscal stimulus can more than pay for itself". The English language is full of dead or dying technological metaphors. How many people have ever primed a pump or kick-started a motorcycle? (I'm old enough […]
Exogenous policy, endogenous policy……and improving policy
On Saturday I posted my views on why it is difficult to get good estimates of the effects of fiscal and monetary policy. On Sunday Greg Mankiw responded to (less than civil) criticism from Nate Silver. Here is the very short version: Nate Silver criticised Greg Mankiw for looking at the effects of an exogenous […]
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