Category Macro
Is Two the new Zero? Why Divine Coincidence failed
Speculative, as Tyler Cowen would say. When people play the Dictator Game Ultimatum Game [thanks Alex] they don't play the way economists would predict. The Nash Equilibrium is for the first player to propose a 99:1 division of the pie take-it-or-leave-it offer, and the second player to accept. Because 1% is better than nothing, so […]
Some very basic non-Walrasian economics
If we had one central market, with a Walrasian auctioneer, where all goods are traded simultaneously for each other, none of this would matter. But we don't; so it does. Partial equilibrium theorists don't need to know this stuff. People who believe prices are always at market-clearing levels don't need to know this stuff. Everyone […]
My macro framework
FWIW. Since everyone else seems to be doing this. 1. There are n different types on labour. 2. Each individual has an endowment of one type of labour, and wants to trade some of it for some of the other types of labour. 3. But (double) coincidence of wants is rare, so they use money […]
“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 […]
Business cycle theory vs growth theory
Macroeconomics is divided into (short run) business cycle theory and (long run) growth theory. Those of us who do business cycle theory have a bit of an inferiority complex (though you might not know it from listening to us argue). Because growth theory seems to be so much more important. Where would you rather live: […]
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 […]
One awkward question about Stephen Poloz’s speech (on Integrating Financial Stability into Monetary Policy)
Suppose the Bank of Canada were following a 5% NGDP level-path target. And suppose that actual NGDP was on target, and was expected to remain on target in future. And suppose you were Governor, and one of your advisors gives you some important news. Financial markets are in a bubble, so the prices of financial […]
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 […]
Negative interest vacuum-cleaner Gesellian money for broke central banks
[I can't decide whether this thought-experiment has any policy relevance. I hope not, but who knows what the future will bring? It came to my mind after reading a (more policy-relevant) post by Simon Wren-Lewis.] 1. Helicopter money is when the central bank prints money and puts it in people's pockets. Vacuum-cleaner money is the […]
Worthwhile Canadian Initiative 
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