Category Macro
The Bank of Canada’s “Hot Hand” experiment and Price-level Targeting
This (pdf) might be the most important controlled experiment economists have ever run. The results of this experiment have been influential in the Bank of Canada's decision (so far) to stick with targeting inflation rather than a price-level path. And making the right decision on that question could save many billions of dollars (trillions worldwide) […]
So What Happens in the Next Recession?
I’m not a macro economist by any stretch of the imagination and yet I cannot help wondering what is going to happen in terms of policy response the next time Canada goes into a downturn. It is not a question of whether there will be another recession, only when. By policy response, I am of […]
Rip van Winkle on Price Level vs Inflation Targets
Rip van Winkle is put in charge of a New Keynesian central bank. He sets a nominal interest rate that he believes will keep inflation at 0% and the price level constant. (It doesn't matter if I change this to rising at 2% per year.) Then he falls asleep for 70 years, and that nominal […]
Price-level targeting as an automatic stabiliser for inflation
Targeting the price level could mean lower variation of inflation than targeting inflation. The best way to target inflation might be to target the price level instead. It's one of those paradoxes of pre-commitment. A promise to do something you don't want to do can affect others' expectations, and others' actions, and help you get […]
Capital flows vs Kapital flows (simpler version)
Let me try to make the intuition of my previous post simpler and clearer. Suppose a country wants to invest more, because the profitability of investment has increased. It wants to increase the stock of kapital (machines) in its factories. There are three ways it could do this: 1 Divert some of its own production […]
Capital flows vs Kapital flows (very wonky)
This is only partly a response to Paul Krugman's posts. Mostly it's me trying to get my own head clear on something. This is a difficult topic, and this post is not as clear as it should be. So I don't expect many, or any, to fully understand it. I don't properly understand it myself. […]
If r < g, bond-finance is like currency-finance
A world where the interest rate on government bonds is (permanently) less than the growth rate of GDP ("r<g") is a weird world. The government can run a Ponzi scheme, where it borrows (sells more bonds) to pay for the interest on the existing bonds, so the stocks of bonds grows at the rate of […]
So, what *are* the differences between a Government’s Budget and a Household’s Budget?
You've probably seen examples. Some poor non-economist says something like: "Governments, like households, must live within their means". And economists all point their fingers and laugh and say that's a fallacy. So, what are the differences between a government's budget and a household's budget? And do those differences matter? This is just a simple "teaching" […]
Two Ways Central Banks can do Monetary Policy even if Bitcoin totally replaces Dollars as Medium of Exchange
Just a quickie, in response to Benjamin Vitaris' article about Warren E. Weber's Bank of Canada Working Paper (pdf) (HT Tony Yates on Twitter). [Update: and read Tony's post, on commercial banks and lender of last resort, as a complement to this post.] Suppose that Bitcoin totally replaces the Canadian Dollar (and every other currency) […]
Central Bank Communication and the Term Structure
It's a choice between being surprised by immediate small changes, and being surprised by warnings of much bigger future changes. A simple and maybe obvious point. I don't know if it's been made before; if not, it should have been. The Bank of Canada has eight Fixed Announcements Dates per year. At each FAD it […]
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