Category Macro
“Involuntary” unemployment as worsening trade-off
This is what I think an increase in "involuntary" unemployment looks like:
A silly question for anti-austerians
Let's make up some silly numbers. Suppose the national debt was, let's say, 1,000% (ten times) annual GDP. And suppose the budget deficit was, let's say, 50% of GDP. And suppose your economy hit the Zero Lower Bound, and suppose you thought that your own central bank's monetary policy could do no more to increase […]
Babies as Human Capital in an OLG model
I'm trolling Elizabeth Breunig. Because she said that "Human capital is one of the more odious terms in the capitalist lexicon". And I like the term "human capital", because I think it helps us think more clearly about investment in training and education. Are new-born babies "human capital"? My first thought was that they possess […]
Steve Poloz on inflation targeting
Stephen Poloz is Governor of the Bank of Canada. Here is the speech he delivered at Western. The whole thing is worth reading. Perhaps I'm reading too much into it. But I see a tension in Steve's speech. He recognises that Divine Coincidence has failed, and that inflation targeting has failed. But he doesn't want […]
Keynesian Cross as simultaneous moves symmetric Nash equilibrium
Let there be two players. The apple producer buys bananas from the banana producer; and the banana producer buys apples from the apple producer. Each must place his order for how much fruit he wants to buy before observing the other's order. Each player's action depends on his expectation of the other player's action. The […]
Fixed exchange rates and Blame Thy Neighbour
There is a parallel universe in which the Euro was never invented, and the Eurozone countries kept their own moneys and their own central banks, with flexible exchange rates. I think the economic outcomes would have been better. But let's just suppose they weren't. Suppose that each of those independent central banks had screwed up […]
Debt does have intergenerational distributional implications
Consider two possible worlds: World A: Us old people bequeath our government bonds to the next generation (as a freebie). World B: Us old people sell our government bonds to the next generation (they pay us for the bonds). See the difference? In world A the next generation inherits the tax liabilities inherent in the […]
If a central bank wants to shrink, it must threaten to grow (autographed edition)
[Nothing great or original here, except maybe the metaphor. It's supposed to be a simple teaching post.] Zimbabwe is only the most extreme recent example of this general rule; the central bank threatened to grow extremely large, and this caused it to shrink extremely small. The Swiss National Bank is another recent example, at the […]
What is the right sort of risky asset for central banks to own?
Should inflation targeting central banks hold a portfolio of assets that consists only of foreign lottery tickets? No, because if its portfolio of foreign lottery tickets became worthless, and the central bank were unable to get a bailout from the government, it would be unable to buy back the currency it has issued. So if […]
Interest rates, exchange rates, and the Bank of Canada
Last week the Bank of Canada cut the overnight rate of interest from 1.00% to 0.75%. The exchange rate dropped 2 cents (about 2.5%) on the news. [Update: I forgot to add (because I figured Canadians already knew it, but then remembered others probably wouldn't) that the Bank of Canada has "done nothing" (with interest […]
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