I am going to give what I think is the intuition behind John Cochrane's paper (pdf), that is the subject of his recent post. (Or maybe what I'm doing is reverse-engineering his model's results.) The key result of his paper is the "Neo-Fisherian" finding that an increase in the rate of interest set by the […]

Suppose I lend you $1,000, at 0% interest. But I warn you that as soon as you spend that $1,000, or lend it to someone else to spend, I will immediately make you repay the loan, or else raise the interest rate high enough to make you regret spending it or lending it. You will […]

Suppose, just suppose, that everyone knows that the price level will be exactly 100 in 2084. (That's 70 years from now, to keep the math simple). Because in 2084 the central bank will redeem all the outstanding notes, in exchange for real goods, at a price of 100 notes per real good. And will then […]

I feel I ought to know the answer to this question. But I don't. Suppose that demand this period Y(t) depends on the interest rate this period r(t), and on the expected interest rate next period E[r(t+1)], and on a vector of other stuff X(t). Y(t) = D(r(t), E[r(t+1)], X(t))  where D1 < 0, D2 […]

[This is based on an informal talk I gave to Carleton students. There were first year students, and upper year undergraduates, and graduate students, and faculty, in the audience, which made it a little tricky.] Somewhere in Canada there is a person whose height is exactly equal (or almost exactly equal) to the average height […]

Tony Yates is arguing with Willem Buiter about helicopter money. Willem says that helicopter money increases aggregate demand even in a liquidity trap, because helicopter money increases net wealth, because money is irredeemable. Tony says that if money is irredeemable, the existence of an equilibrium in which intrinsically worthless money has positive value becomes problematic. […]