Category Macro
Short Run vs Long Run order of moves between monetary and fiscal authorities
Who moves first, and who moves last? In a game between the monetary authority and the fiscal authority, the order of moves matters. Just like in Stackelberg duopoly, where the effect of an increase in one firm's quantity will depend on whether the other firm is the leader and has already chosen its quantity, or […]
Fragility of Nash equilibria and Neo-Fisherites
I hope that I am reinventing the wheel by writing this post. And that some game theorist has already written something much better on the same subject. (If not, then they should have done.) But I need a game theorist to tell me about it and explain it to me, in simple language (if possible). […]
Reverse-engineering David Andolfatto’s and Stephen Williamson’s Neo-Fisherian paper
Stephen has a new post defending the Neo-Fisherian perspective. He links to a new paper he and David wrote (pdf). It is not an easy paper. This is what I think is the intuition behind the results. Start with the Fiscal Theory of the Price Level, where B is the nominal stock of government "bonds", […]
The over-investment and under-saving theory of the ZLB
This post is ironic. I have a really neat new theory of what causes countries to hit the Zero Lower Bound. It's got a beautifully counter-intuitive policy implication. The government needs to tax investment, or subsidise saving, to help the country escape the ZLB. What I need is a co-author to help me do some […]
The collective speed limit game
Neo-Fisherite fun. Plus concrete steppes fun. 1. Suppose you don't care what speed you drive. Anything between 0 and 200 is all the same to you. But the cops do care what speed you drive. They want you to drive at exactly the speed limit S*, neither faster nor slower. (They have a symmetric target.) […]
Bond Finance and the Great Depression
Attending the Social Science History Association Meetings in Toronto this weekend provided as usual an opportunity to take in new papers and ideas, digest them and then think about what further insight they might add to our knowledge of past economic events. One such paper was Richard Sutch’s (University of California) “Financing the Great War: […]
Black holes and Neo-Fisherites are a monetary phenomenon
Suppose you live in a Neo-Wicksellian economy, where the central bank sets a nominal rate of interest. Black holes are a theoretical possibility. Nominal demand for goods can spiral down to zero, if people expect it to. And white explosions are a theoretical possibility too. Nominal demand for goods can spiral up to infinity, if […]
Neo-Fisherites again: Schmitt-Grohe and Uribe
I was scared of reading Stephanie Schmitt-Grohe and Martin Uribe's paper (pdf). All I knew was that it was a technically demanding paper, and that it had the "Neo-Fisherite" result — if the central bank increased the rate of interest, inflation would rise. I have now read it. Sort of. I think I now understand […]
Neo-Fisherites and the Scandinavian Flick
Noah Smith wonders if "reality might topple a beloved economic theory". Well, if you look at Sweden, reality just confirmed that beloved economic theory. The Riksbank raised interest rates because it was scared that low interest rates would cause financial instability. Lars Svensson resigned in protest. Then inflation fell, and the Riksbank needed to cut […]
Making two macroeconomic fallacies true
This will be a confusing post, because I'm writing it to try to get my head clear on something. And it's still not clear. There are no answers here: only questions, and strange thoughts. 1. Lots of people believe the Inflation Fallacy: "Inflation makes us worse off because a 1% rise in prices means we […]
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