Category Fiscal policy
Why there’s so little good evidence that fiscal (or monetary) policy works
Will fiscal (or monetary) policy work to prevent a recession? This is perhaps the central question of macroeconomics. We ought to know the answer, and we ought to have overwhelmingly good evidence to support our answer. But we don't. It's still being debated. There's a reason we don't have good evidence.
Debt and Wealth
Does an increase in debt mean a decrease in wealth? There's the accounting question, which should help us keep our heads straight. But there's also an economic question: what is the causal relation between debt and wealth?
A GST fiscal stimulus
There are a number of fiscal stimulus proposals out there, but none of them incorporate my suggestion for using the GST to promote an explicitly short-term stimulus and to ensure that the government's ability to pay for future spending is not permanently compromised. For those of you who have not been paying close attention [Cries […]
Current Fiscal Policy vs. Future Monetary Policy: Price-level Path Targeting
Paul Krugman presents a simple formal model of a liquidity trap. He shows that monetary policy won't work, but fiscal policy can work, to bring the economy to full-employment. Actually, that's not right. What his model shows is that current monetary policy won't work (because the nominal interest rate is at zero); but future monetary […]
A fiscal stimulus proposal that should be implemented, but won’t be
A recession is here, the Bank of Canada is running out of bullets, and it's time for a fiscal stimulus. The problem is that the worst possible signal has been sent out to the usual gang of well-connected, media-savvy interest groups: "We're giving money away, and we really don't care who gets it!". This has […]
Multipliers in a liquidity trap; fixed vs. flexible exchange rates. Disagreeing with the IMF.
In a liquidity trap, interest rates are stuck at zero, so increases in government spending do not raise interest rates. What are the government spending multipliers in a liquidity trap? Closed/open economies; fixed/flexible exchange rates.
Some simple arithmetic of Canadian debt and deficits
Various numbers for projected deficits have been reported recently. This post tries to put those numbers into perspective.
Buiter, Krugman, Steinbrueck, free-riding, and the exchange rate
Warning: this post is difficult, and I'm not at all sure I've got it right. But I'm going to post it anyway. What determines the exchange rate in a liquidity trap? [Prerequisite: second year Open Economy Macro] In case you hadn't noticed, there's a small war going on, with Willem Buiter (UK) and Paul Krugman […]
But what would happen to the debt if we didn’t run a deficit now?
If the government runs a deficit now, the debt-burden on future taxpayers will increase. But maybe the debt-burden would increase even more if we didn't run a deficit now? The proper way to handle policy questions (in economics, or anywhere) is to compare what will happen with the proposed policy to what would happen under […]
ZIRP Deficits cause Crowding In of Investment, by reducing Deflation
I am going to make a very simple point, which has (I think) been missed in the current blog debate over whether deficit spending will crowd out or crowd in investment: deficits reduce expected deflation, which crowds in investment.
Worthwhile Canadian Initiative 
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