Category Macro
Teaching general principles of macro
In a couple of hours the Bank of Canada will do what it does eight times a year. It will set a temporary target for the overnight rate of interest. Will it raise it, lower it, or leave it the same? What will its decision depend on? How will its decision affect the Canadian economy? […]
How long is the short run? The macroeconomics of “doing nothing” revisited
The answer we normally give, when teaching intro macro, is: "It depends on price stickiness; if prices are very flexible it will be short, and if prices are very sticky it will be long." A better answer would be: "It depends on monetary policy; if monetary policy is very good it will be short, and […]
The New Keynesian conspiracy
New Keynesians believe that Say's Law is false. But they want the central bank to try to make Say's Law look true. New Keynesians believe that real business cycle theory is false. But they want the central bank to try to make real buiness cycle theory look true. New Keynesians believe that the loanable funds […]
Money, barter, the clearing house, and balance sheet recessions
I think David Beckworth is onto something important here. What looks like a balance sheet recession can in fact be caused by an excess demand for money. The hairdresser cuts the hair of the manicurist, who does the nails of the masseuse, who massages the hairdresser. We have a Wicksellian triangle, with no double coincidence […]
Teaching Loanable Funds vs Liquidity Preference
This is primarily for teachers of intro macro. Maybe for teachers of intermediate macro too, as a way to interpret ISLM. We have two quite different theories of what determines the rate of interest: Loanable Funds says that the rate of interest is determined by desired saving and desired investment. Liquidity Preference says that the […]
Secular stagnation and the end of retirement?
Retirement is weird, when you think about it. We consume small amounts of leisure for most of our lives, then suddenly stop working completely and consume a big bunch of leisure for the rest of our lives. We smooth our consumption of all other goods, but we don't smooth our consumption of leisure. Instead we […]
On forgetting land in models of secular stagnation
If I see one more model of secular stagnation and negative equilibrium real interest rates, that does not include land….I'm going to throw a real wobbly. What is it with you townies? Have you never looked out of the window, when you fly (do you ever drive?) from one city to another, and wondered about […]
Temporary vs permanent money multipliers
"Otherwise what I was mostly trying to suggest was that the banks anticipate the fact that the central bank won't let them double the supply of money and factor this into their loan and deposit pricing. The idea is that the current amount of deposits is not so much based on the curren[t] supply of […]
What is a “managed exchange rate”?
It's a relative thing. I think it can only be defined relative to some specified alternative, like inflation targeting. It doesn't mean anything otherwise. There are n different things a central bank could target, where n is an extremely large number. (Strictly, n is infinite, since any combination of two members of n is also […]
Two first year multipliers: their truth, beauty, and usefulness
Alone again or, just me and the money multiplier, against the world of trendy sophisticates who have put aside such childish things. It brings out the reactionary contrarian in me. And the world needs more reactionary contrarians, to help provide negative feedback against the faddish bubble multiplier of popular theory. There are two multipliers we […]
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