Category Macro
Fiscal policy with Old and New Keynesian IS curves
With the Old Keyensian IS curve, the natural rate of interest is a positive function of the level of government expenditure. High G means high r*. With the New Keynesian IS curve, the natural rate of interest is a negative function of the rate of change of government expenditure over time. High Gdot means low […]
Why don’t we have disinflation (until now)?
Just a quickie, between meetings. Paul Krugman asks "Why don't we have deflation?" His answer is: downward nominal wage rigidity. And he shows that graph of frequency distribution of nominal wage changes with a big spike at zero. I don't think that's quite the right question. So I don't think that's quite the right answer. […]
What is an “excess demand for money”?
I know what it means to say there is an excess demand for apples. And I know where to look to see whether there's an excess demand for apples. I go to the apple market, where people buy and sell apples for money. If I see that it is hard for people who want to […]
Hot potatoes and hot yams
Money (the medium of exchange) is an asset. But the demand for money is different from the demand for any other asset. Here is an (inadequate) parable that tries to explain why it is different.
A monetary policy target can only be defeated by a better monetary policy target
"Monetary policy can cause bad things to happen in financial markets, which can cause bad things to happen in the rest of the economy. Therefore NGDP targeting is wrong." I made up that quote. But if I had to summarise M.C.K.'s long article in two short sentences, that is how I would do it.
Simple models and the macroeconomics of price controls
I hear that Argentina has imposed [update: economy-wide] price controls. I know next to nothing about Argentina, but I have spent some time thinking about the macroeconomics of price controls. I can easily build a simple macroeconomic model showing that price controls are a good thing that can make everybody better off. I cannot build […]
(Why) Is inflation finally falling?
This post is premature. It's too early to say for sure. And I don't have any real answers to explain this (possibly non-) event. I'm trying to fit together a number of things that have been puzzling me.
Two extreme fiscal/monetary worlds
I want to imagine two extreme worlds, at opposite ends of the spectrum of possibilities. In the first world (the "fiscal" world), all financial liabilities of the government are non-monetary liabilities, "bonds", that cannot be used as media of exchange. People use something else for money. Maybe gold, or maybe money issued by commercial banks. […]
Did inflation targeting make inflation stickier?
I think my last post was very clear. Inflation targeting failed. I know this post won't be clear. But this post tries to answer the question that my last post begs to be answered. Why did inflation targeting fail? I used to think that if the Bank of Canada succeeded in keeping inflation on target, […]
The Bank of Canada’s success and failure
The Bank of Canada has been very successful in keeping inflation on target. Which is what the Bank of Canada was supposed to do. But keeping inflation on target has failed to prevent recessions caused by deficient aggregate demand. Which is what keeping inflation on target was supposed to do. The problem is not the […]
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