Category Macro
A simple New Keynesian brain-teaser
Update: I sketch my own answer in the comments below. This is a question for all students of New Keynesian macroeconomics. I mean "students" in the sense of "those who study", so that includes the profs too. It is a very basic question. There is no fancy math to fool you. If you cannot answer […]
Two simple NK pictures
I'm staying out of this argument. But I can't resist a challenge to show the New Keynesian model in pictures, with indifference curves, production functions, and budget lines. I can't do it in one picture. I need two.
Capital income in a recession
Profits and income from capital are not the same thing, though they are mixed together in the national accounts. (Paul Krugman has made this point before.) I work through some simple examples with sticky prices and/or sticky wages, where income from capital always falls in a recession caused by tight monetary policy. [I add an […]
Chris House is a Market Monetarist!
OK, maybe I exaggerate a little. But he's at least halfway there. One of the key points that Market Monetarists (Scott Sumner especially) keep making (and that keeps getting ignored) is that low (nominal and real) interest rates are not a sign that monetary policy is loose, but are a consequence of monetary policy being […]
Relative price shocks, price-level shocks, and who moves first
Suppose a real shock hits the economy. It affects relative prices. The prices of the green firms must rise relative to the prices of the red firms. The prices of the red firms must fall relative to the prices of the green firms. Same thing. But which happens? Do the green prices rise, or do […]
Collateral and the money supply
I sketch a simple model where a shortage of collateral reduces the money supply, and makes the Cash-In-Advance constraint binding in an otherwise New Keynesian model. This post is a followup on my previous post on "negative money".
Tiff Macklem, retail competition, flexible IT vs NGDPLT
Tiff Macklem is senior deputy governor at the Bank of Canada. On Friday, Tiff gave a speech on "Flexible Inflation Targeting and 'Good' and 'Bad' Disinflation". The Bank of Canada is not like the Fed; Tiff's speech reflects the Bank of Canada view. The picture below reflects what I think Tiff might be saying:
Negative money
There are two parallel worlds. Both worlds use bits of coloured paper as money, because barter is very difficult. The green world uses green paper as money, and the red world uses red paper as money. The green paper money has a positive value. The red paper money has a negative value.
Two interest rates, and one simple question.
Most simple macro models have just one (nominal) interest rate. I want to complicate it, just a little, by talking about two (nominal) interest rates: 1. There is the rate of interest you get paid if you hold money. Call it Rm. 2. There is the rate of interest you get paid if you lend […]
Separating real from nominal shocks
Nobody wants a monetary policy that creates nominal shocks. "Don't do random stuff with monetary policy for no reason at all!" is clearly sensible and uncontroversial advice. But finding a monetary policy that separates real shocks from nominal shocks, so that real shocks don't also create nominal shocks, is harder. But that is exactly the […]
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