Category Macro
A response to David Andolfatto – monetary policy as insurance policy.
David has two posts in which he presents a model in which price level targeting is optimal and NGDP targeting isn't. (It's best to start with his second post). His model has an interesting feature (the bit about imperfect news being IS shocks but the shocks themselves being AS shocks is really neat), but to […]
Multiple own rates of interest don’t matter, but the monetary policy target does matter
There are lots of problems with thinking about monetary policy as setting a nominal rate of interest, and trying to keep the actual real rate of interest equal to the natural real rate of interest. But multiple own rates of interest (the "Sraffa problem") isn't one of them.
Where’s the deflation? The supply side of banks
If banks go bust and firms can't get bank loans to finance their operations, that has supply side effects too. A firm that has plenty of customers, but can't get financing to produce enough goods to meet the demand, may raise prices. And if a firm closes down because it can't get financing, its competitors […]
Jobs, inflation, expectations, and causation.
Matt Yglesias says that "Inflation doesn't create jobs, jobs create inflation". Well, yes and no. Both. Neither. It's simultaneous causation. It's a non-linear story, in the Artsie sense of "non-linear". And don't forget expectations. When we add in expectations, the story becomes very non-linear. Here's a simple plot summary. (OK, it's not at all simple, […]
What’s a “country”?
Take any country. Or rather, take any normal country, with its own currency. Suppose some people in that country are less "productive" (defined however you want) than other people in that country. That's normal. Now let's call the less productive people "Greeks" and the more productive people "Germans". Does calling them different names suddenly cause […]
How do the French control the size of the Sun? Hume vs Patinkin.
How do the French control the size of the Sun? How does the Fed control the size of the US economy? More importantly, how are those two questions related? [I'm still thinking about this, but have decided to post it anyway.] There is a metal rod in Paris that defines the length of the metre. […]
What were they thinking?
One of the best lines I heard at this year's CEA meetings was delivered by Chris Ragan, at a session on the Euro organized by Paul Jenkins.
An NGDPLP Target vs a higher Inflation Target as insurance against the ZLB
This is not a new point (Scott Sumner has made it before), but it needs repeating. The Zero Lower Bound is something we want to avoid. Here are two ways we can change monetary policy to reduce the risk of hitting the ZLB. Both work, but one comes at the cost of higher average inflation. […]
Artsie non-linearity, economics, and the concrete steppes
When economists say that something is "linear", rather than "non-linear", they normally mean it is a straight line, rather than curved. Y=a+bX is linear; Y=a+bX2 is non-linear. That is NOT what I am going to mean by "linear" in this post. Instead, I am going to use the words "linear" and "non-linear" in the way […]
Three (maybe four) main questions about money
What are the main questions in monetary economics? This post isn't really about the answers to those questions. It's about the questions themselves. This is how I think about dividing up monetary economics into a small number of main questions, and how those questions are related to each other. Others may want to divide it […]
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