Category Macro
Redefining “inflation”: Austrians, NGDP targets, and my mother
Some Austrians (I can't remember which ones) define "inflation" as "a growing supply of base money". [Update: Jonathan Finegold gently corrects me.] This used to strike me, as it strikes most economists, as a bit daft. OK, I would think, you can define "inflation" that way if you want, but "rising prices" is what the […]
The trade cycle: debt is trade
GDP is high in booms and low in recessions (relative to trend). That is (roughly) how we currently define "booms" and "recessions". GDP (roughly) measures the volume of trade in newly-produced final goods. But that is a narrow measure of trade. A lot of goods get traded that are not newly-produced. People buy and sell […]
The inflationistas are our friends; and inside and outside inflationistas
Noah Smith is doing something very wrong. The whole point of monetary policy at the ZLB is to create inflationistas. We need more inflationistas, not less, and so Noah should stop dumping on them, and saying their fears of inflation are groundless. For every inflationista destroyed by us laughing at their fears, central banks have […]
Money, bonds, and the price level
I want to try to answer Simon Wren-Lewis' good question. Let me first restate his question in my own words. (Always a good way to begin, to see if I've understood him properly.) Take a very simply model of an economy, in which a government issues a nominal stock of (high-powered) money M, and a […]
Keynes’ question and the “Keynesian” answer
How did "fiscal policy" get to be the answer to a question about time and money? Sophisticated Keynesians will object if I treat "Keynesian" as synonymous with "having a predilection for fiscal policy". But I think they would recognise that the two are correlated. And that correlation is puzzling. The correlation seemed to disappear during […]
We should not teach the Keynesian Cross in Intro Macro
I have taught Intro Economics maybe 30 times in total. (I started very young). Forget about the A students, because there aren't many of them. (We don't all have massive grade inflation.) Think about the C students. And forget about the Economics majors, because other people will teach them after you. Think about the students […]
Raising expectations of inflation vs raising expectations of NGDP growth
Brad DeLong says: "If you believe–as I do–that the overwhelming proportion of the effects of non-standard monetary policy at the zero nominal lower bound come from reducing short-term safe real interest rates by raising expectations of inflation,…" I believe something a bit different. Let me try to convince Brad to see it my way. Let […]
Rates, rents, shares, and capital theory
I think this is the technology that Paul Krugman has in mind: 1. C + Kdot = A.La.K(1-a) C is consumption, K is the capital stock, Kdot is investment, L is employment, A is a parameter that represents productivity, a is a parameter that (in competitive profit-maximising equilibrium) will equal labour's share of national income, […]
New Keynesian countercyclical fiscal policy isn’t what you probably think it is
If it weren't for the Zero Lower Bound on nominal interest rates, there would be no macroeconomic role for fiscal policy in New Keynesian models. Monetary policy alone could and therefore should be used to hit the macroeconomic target, because this leaves fiscal policy free to try to hit its many microeconomic targets as best […]
Words and wartime austerity
Words matter. You can't have an intelligent discussion about fiscal policy if you use loaded and misleading words to describe fiscal policy. Cancelling or postponing a government investment project might be a wise decision. Or it might be a foolish decision. But it is not "austerity". Implementing or preponing a government investment project might be […]
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