Category Macro
“Does monetary policy have (bad) distributional consequences?”
Some questions are bad questions. This is one of them. We can get a clearer and more useful answer if we change the question. We can avoid wasting a lot of time arguing at cross purposes. Here's a better question: "If we used fiscal policy instead of monetary policy to remove a shortage of aggregate […]
Abolish the Equity Premium Now!
This post is slightly whimsical. I can't decide myself if I'm being totally serious. My argument is certainly less than watertight. But it's not (to me) obviously wrong either. So I'm just throwing it out there.
Devaluation and the Euro
"Consider a small open economy with fixed exchange rates. Suppose the central bank announces that it will devalue the currency by 50% one year from today. What are the consequences of this announcement?" IIRC, the whole point of the Euro was that questions like that wouldn't make any sense, and so would never need to […]
Are quantities backward-looking or forward-looking?
I've been reading three things this morning: Chris Dillow, responding to my earlier post. Chris says that expectations (of future monetary policy) are a "weak lever". Roger Farmer, showing that lagged stock prices plus lagged unemployment have really good out-of-sample forecasting properties for unemployment. Paul Krugman, saying: "As I read it, price and wage setting […]
Identity Economics
Here are two macroeconomic identities: 1. Y=C+I+G+NX 2. MV=PY Both are true by definition.
How much do expectations matter?
It is a cliche (among economists) to say that expectations matter. It is even more of a cliche to say that expectations matter for asset prices. But how much do expectations matter? I'm going to do a quick and dirty back of the envelope calculation to show that expectations matter a lot. And that the […]
Ulysses of the concrete steppes
Ulysses had to take concrete steps to influence his own future actions. He had himself tied to the mast. Unlike Ulysses, most of us don't have to take concrete steps to influence our own future actions. Instead we make promises.
Fiscal policy, ideology, and framing
TiC Take a standard New Keynesian macro model. Assume it sometimes gets stuck in a ZLB liquidity trap, where monetary policy can't work. There is a very simple solution: use fiscal policy. Government spending should be cut whenever the economy is not in a liquidity trap. That is the clear policy implication of New Keynesian […]
Three arguments for NGDP targeting
This is in response to David Andolfatto's questions. Nominal GDP is just one of an infinite number of variables that monetary policy might target. The probability that NGDP is exactly the best target variable is infinitesimal. I nevertheless support NGDP targeting, because I think it is probably reasonably close to that unknown best target variable; […]
Wicksteed, stocks and flows
Flows are very very small relative to stocks. Each of us demands a flow of air to breathe, but since the flow demand is very very small relative to the stock supply of air, air is a free good. OK, that analogy is not perfect, so let me build a little "model".
Worthwhile Canadian Initiative 
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