Category Macro
Liquidity pile-ups on the Wicksellian roundabout
I'm trying to model something, and failing miserably. So I'm going to try to articulate my vision, hoping for inspiration. Imagine a large number of cars forever circling around a very large roundabout. Initially they are all going the same speed, and are evenly spaced. What happens if one car slows down temporarily? (I saw […]
Two LM curves
Sometimes we borrow money from the bank because we plan to spend more than we expect to get in income. And sometimes we borrow money from the bank because our stock of money is too small relative to our flows of planned spending and expected income. Here is a rough sketch of a simple model […]
The sense in which the stock of money is “supply-determined”
Consider three positions: 1. The stock of money is determined by the demand for money, and not by the supply of money. 2. The stock of money is determined both by the demand for money and by the supply of money. 3. The stock of money is determined by the supply of money, and not […]
Macro savings vehicles
An individual who decides to save for retirement has a choice between a number of different savings vehicles: stocks, bonds, real estate, etc. What are the choices when we aggregate up to the economy as a whole? I write this post in response to an email from someone who is knowledgeable about the savings vehicle […]
Coordination and the demand for money
Why do financial (and other) crises (sometimes) cause a recession? Because they increase the demand for money and so cause an excess demand for the medium of exchange. But why do financial crises increase the demand for money? Because the demand for money depends on the synchronisation of payments and receipts of money, and synchronisation […]
Keynes, New Keynesians, and the Keynesian Cross
Simplify massively. Ignore investment, government spending and taxes, and exports and imports. All output is consumed. Assume a Keynesian consumption function: Cd = a + bY. Draw Samuelson's "Keynesian Cross" diagram. Real consumption demand Cd on the vertical axis, and real output (real income) Y on the horizontal axis. Demand for consumption this current period […]
Keynes’ GT Chapter 3
Keynes' "aggregate supply function" in chapter 3 of the General Theory is just the "classical" labour demand function plus the "classical" production function. Except for the weird presentation, there is nothing new there. It is old and boring. It is Keynes' "aggregate demand function" that is new and exciting. [Update: See Roger Farmer's response.]
The 45 degree line means Y=min{Yd,Ys}
(I'm disagreeing with Roger Farmer on the interpretation of the 45 degree line. I say the 45 degree line is not a supply curve. This post explains what I think it is.) Here's the Keynesian Cross diagram: How should we interpret the green 45 degree line?
Swapping the assignment of targets to instruments
Before leaving on his pilgrimage, the King appoints two ministers. He gives the first minister control of instrument m, and tells him to set m so that the target variable M is equal to the target M*. He gives the second minister control of instrument f, and tells him to set f so that the […]
The anti-NK model and minimum wages
I present a simple model that has exactly the opposite predictions to the standard New Keynesian model: if the central bank sets the nominal interest rate too high (too low), that will cause an increase (a decrease) in output and employment. If you think that an increase in the minimum wage will cause increased employment, […]
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