Category Fiscal policy
It’s easier to have a sensible fiscal rule with an NGDP level-path target
It's a simple point, perhaps an obvious point, that only needs a short blog post, but I think it's worth making. The Brits seem to be arguing about whether they should have some sort of rule (or charter) for fiscal policy, and if so, what it should look like. I am a bit skeptical, because […]
External validity, fallacies of composition, and the Wawa multiplier
The Canadian government decides to run an experiment to see if fiscal policy works. It throws 100 darts at a map of Canada. One dart lands on Wawa Ontario, so it spends an extra $1 million in Wawa. Local GDP in Wawa, and local GDP in all the other 99 places where the darts land, […]
Temporary vs permanent fiscal policy in a small open inflation targeting economy
Just a short note as a backgrounder for the current Canadian debate about fiscal policy. This is totally unoriginal boring textbook stuff (at least I hope it is, anyway). Prerequisite: intermediate macro (or special permission to skip to the results if you promise not to ask me daft questions about where they came from). The […]
“Drop your shovels NOW!” On ending fiscal policy in NK models
I've been trying to get my head around this over the last few days. Still not sure I'm there yet. But anyway: It seems to me that the effect of fiscal policy at the Zero Lower Bound in New Keynesian models is extremely sensitive to timing the exit. This isn't about finding "shovel ready" projects […]
Secular stagnation and Mutual Fund Marxism
Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised a higher rate of return than any alternative asset. The government can do this, because it has the power to tax. Everybody prefers holding that government-issued financial asset to any other asset. There would be an excess demand for that government-issued […]
Old Keynesian vs New Keynesian fiscal policy
Mostly for non-macroeconomists. I first learned macroeconomics in the very early 1970's in the UK. I learned that the macroeconomy was not automatically self-equilibrating, and that the government should use fiscal policy to target "full employment" (aka "potential output"). The government should loosen fiscal policy when the economy was below potential and tighten fiscal policy […]
Keynes just left Canada
Paul Kugman's post title is "Keynes comes to Canada". Paul is wrong. Keynes was in Canada, but he just left. Look at this graph from Matthew Klein (a very good article, by the way): The other bit of information you need to know is that the Bank of Canada hit the Zero Lower Bound in […]
Countries as clubs: open borders and debt/GDP ratios
Don't think of a country as an area of land. Think of a country as a club, to which a group of people belong. Nomadic tribes were not attached to any particular area of land. Settled agriculture on scarce land is a recent and contingent fact. Clubs provide club goods to their members. Club goods […]
Fiscal offset of silly QE
This is (primarily) for Brits. 1. Suppose I normally buy 10 apples at $1 each. Then the government taxes me $3, buys 3 apples, and gives me those 3 apples. I will now buy 7 apples instead of 10. The net result on my consumption of apples, and everything else, is zero. The only difference […]
The equivalence between national debt and transferable monopoly rights
I got this idea from reading a Matt Rognlie comment on a previous post. (But Matt may or may not agree with what I say here). A. Suppose the government sells bonds, and finances those bonds by imposing a 10% sales tax on (say) milk. B. Suppose the government sells transferable milk quotas, and sells […]
Worthwhile Canadian Initiative 
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