Category Macro
Two types of liquidity “shortage”
If I said that the recent recession was caused by a shortage of liquidity, most people would say I was mad. "Look how easy it is to get a loan, at such low interest rates!" In hyperinflations, the price of liquidity is extremely high. If the price level is doubling daily, then currency pays a […]
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 […]
Inflation in Lake Wobegone
In Lake Wobegone there are 1+n firms. The first firm raises or lowers its price by a mean-zero random amount, e. The remaining n identical firms wait to see what the first firm has done, then raise their prices by B times the average expected inflation rate, or lower their prices by B times the […]
Could increasing monopoly power explain declining interest rates?
Suppose that monopoly power (as measured by the markup of price over marginal cost) has been increasing over time. What effect would that increase in monopoly power have on the equilibrium (real) rate of interest? TL:DR the sign is right, but the magnitude looks far too small.
The (near) inevitability, and who and when, of Helicopter Money
Helicopter Money is (almost) inevitable. The only questions are: who does it; and when do they do it. And we can't (easily) tell when it gets spent, and what it gets spent on, because money is fungible and we don't observe counterfactual conditionals. Let's make some ballpark-correct assumptions. Assume currency pays 0% interest, and the […]
Two simple games, for game theorists and Neo-Fisherites
I'm hoping some game theorists will chime in here; it doesn't matter if you don't get macro. I need your help, and want your thoughts on my intuitions: Not all Nash equilibria are created equal. Game A. There are n identical players who move simultaneously. Player i chooses Si to minimise a loss function Li […]
“King of deficits”??
I normally stay out of politics on this blog. But with the upcoming election, the political conversation on fiscal policy is starting to get stupid. In particular, for Paul Martin to accuse Stephen Harper of being the "King of deficits" was really stupid. Is there anything Stephen Harper could have done to have prevented a […]
Good shocks, bad shocks, and shocks that cause a monetary coordination failure
Just because a shock is a bad shock doesn't mean it should cause a recession. A recession is a monetary coordination failure. Monetary coordination failures are caused by monetary policy. Start with a Robinson Crusoe economy. By assumption, Robinson Crusoe always allocates his resources perfectly to maximise his expected utility given his information about the […]
Why did (Canadian) inflation-targeting work in 1996 but fail in 2008?
In both 1996 and 2008 the Canadian economy was hit with a big shock. The 1996 shock was the change in fiscal policy, turning a large deficit into a large surplus. The 2008 shock was the global financial crisis. (Canada didn't really have much of a financial crisis; no banks failed, as usual.) In both […]
Worthwhile Canadian Initiative 
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