Category Macro
Employed vs unemployed wage rigidity
Suppose you believe that (nominal) wage rigidity in the face of a decline in the (nominal) demand curve for labour is what causes unemployment in a recession. Is it wage rigidity of the employed workers or of the unemployed workers that's the problem? Scott Sumner and Alex Tabarrok say it's (mostly) the wage rigidity of […]
Understanding another’s theory
Two field linguists are trying to translate a foreign language from scratch. So they are following a native speaker around. The first linguist knows the difference between a rabbit and a hare. The second linguist doesn't know the difference between a rabbit and a hare.
Robust and fragile models, and fragility in the limit
Assume prices are perfectly flexible. Assume full information rational expectations. Assume money is neutral, super-neutral, and super-duper-neutral, etc. The Fisher equation holds exactly. And, the central bank sets the nominal rate of interest. And the economy is always in equilibrium. The model predicts that if the central bank increases the nominal interest rate by 1%, […]
The Keynesian case for government wage cuts
Park your politics at the door for this one. Yes, I know that will be hard for some. But it's OFF TOPIC. [Update: now that the macroeconomics have been thoroughly discussed in comments, I can relax this. Civilised discussion of politics is now OK.] Yes, I understand Keynesian macroeconomics at least as well as most […]
Dealing with the Current Financial Crisis
Well, I'm certainly not a macroeconomist and I have even less expertise when it comes to the world of money and banking and international finance. Yet, given the current situation in financial markets and the world economy, I cannot help but wonder if the problem is also institutional. So, here it goes.
The macroeconomics of double pole dancing
The stupidest thing we do in macroeconomics is draw a downward-sloping IS curve. It's the stupidest thing we do, because we know it's stupid. (And I've done it hundreds of times.) And because we do this stupid thing, we associate tight money with high interest rates. Unless of course we are someone like Scott Sumner, […]
A simple Keynesian-monetarist brain-teaser
Mostly for fun. Mostly for economics undergraduates. But I think there may be some serious lessons too. Sometimes I like to really push a model, into an extreme limiting case. To see if I can still get my head around it. To see if my intuition is lining up with what the math is telling […]
Aggregate supply and relative supply — and demand.
Micro and macro are different. We have to be careful about drawing macro conclusions from what happens at the micro level. We can't just extrapolate. This is in response to Casey Mulligan's post on evidence that supply matters. He draws macro conclusions about aggregate supply from micro evidence about relative supply.
ZMP workers and output quotas
Imagine, just imagine, that the government put a quota on the total output of, say, cars. Because some rabid environmentalists told them to. The result would be a drop in employment of auto workers. Some of those workers, who had skills useful in other sectors, would be able to find jobs elsewhere. Others, who had […]
The monetary policy of last resort — currency reform.
The monetary policy of last resort is to get rid of the old money and start a new one. "Currency reform". I can just remember this policy being mooted in the 1970's. What happens if tightening monetary policy fails to break entrenched inflationary expectations and an ever-increasing inflationary spiral? It was the ace in the […]
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