Category Macro
VAR vs WTF!?
Vector auto regressions (VARs) are supposed to tell us how the economy would respond over time if hit by a shock, by looking at past patterns of responses to shocks. A "shock" means "a deviation of one of the variables in the VAR from the level that was forecast by the VAR". And "shocks" include […]
The mechanics of exchange and non market-clearing prices
[Update: on second thoughts, maybe this post was not quite ready for prime-time. But I think it's still fun to play with.] Here is a very simple model of a pure exchange economy where the mechanics of exchange (who can trade what with whom) determine whether very small departures of prices from market-clearing cause very […]
Deficit targeting vs Debt targeting
Is a "balanced budget law", even a flexible law that allows temporary deficits (and surpluses) in appropriate circumstances, the right way to think about prudent sustainable fiscal policy? A financial asset is just a bit of paper with a promise written on it. A promise is a commitment about the future actions of the promiser, […]
Noah vs Steve: a suggested interpretation
Is Woodford's "cashless" economy a model of a monetary exchange economy, or a model of a barter economy? (In a monetary exchange economy, all other goods are only exchanged for one good called "money"; in a barter economy each good can be exchanged for any other good.) If you answer "barter economy", then modern New […]
Secular stagnation, liquidity, and rent/price ratios
No answers here, only questions. By "secular stagnation" I mean "declining equilibrium real interest rates". Most explanations of secular stagnation say it is caused by a rising desire to save and/or a falling investment demand. Call this the "Saving/Investment Hypothesis". But there are lots of different real interest rates. For example, the real interest rate […]
Monetary policy in New Keynesian models is Gesellian
In one important respect, what we call "New Keynesian" macroeconomic models are in fact New Gesellian macroeconomic models. That's only in one respect, but it is important. Silvio Gesell proposed a tax on currency. The higher the tax rate, the faster people would spend that currency. A tax is a negative subsidy. The higher the […]
Buyer’s liquidity vs seller’s liquidity
Liquid goods are easy to buy and sell. Illiquid goods are hard to buy and sell. I think we need to break up "buy and sell" into its two component parts. In a buyer's market, goods are easy to buy and hard to sell. The same good is liquid from the buyer's perspective, and illiquid […]
David Levine’s accidental Monetarism
I confess this is a bit of a "Gotcha!". But it's a bit more than that as well. It illustrates the difficulty that people (even economists) have in "seeing" money. Brad DeLong flatters me (but he's right that this is right up my street), then sends me to David Levine. Here's the "money quote" (sorry).
Lump of Labour, Say’s Law, and the slope of the AD curve
I wrote this partly for Sandwichman, and mostly I wrote it because this same question crops up time and time again. It's a very old question, but it always looks like a new question if the technology is new enough. People in caves were probably arguing about whether 3-D printing robots flints would cause mass […]
How much of a deficit will in fact be money-financed?
I want to do some very back-of-the-envelope calculations. (I will probably get the arithmetic wrong.) A bond-financed deficit is where the government prints bonds to finance a deficit. A money-financed deficit is where the government (or the central bank it owns) prints money to finance the deficit. They are different for two reasons: 1. Money […]
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