Category Macro
Migration, Wages, and Corner Solutions
I'm trying to get my head straight on something. Macro farmboy lost in Urban Economics again. Read at your own risk. If immigration always increases real wages (or well-being), do we end up in a "corner solution", where everyone bunches together in one location leaving other locations empty? If so, that's a reductio ad absurdam, […]
The exchange rate and net exports “contribution” to growth
This post is about national income accounting, and its dangers. Reading Simon Wren-Lewis' post about Brexit and real wages made me finally decide to try to get my head clear about something I've been meaning to get it clear about for some time. I think Simon might be wrong about something (I'm not sure though, […]
Thinking about Costs and Benefits of Immigration
I find this a useful way to organise my thoughts about the costs and benefits of immigration. It may work for you too. I start out with a neutral benchmark, where immigration has neither costs nor benefits for the original population. Then I think of different ways in which that neutral benchmark could be wrong. […]
Hysteresis vs Full Recovery by creating a Boom?
Simon Wren-Lewis has an important post. Read it first. If he's right then what looks like hysteresis from the recession is due to deficient Aggregate Demand. But is he right? This post is my attempt to figure it out. I want to start with a very simple model with no hysteresis — where recessions have […]
Monetary Policy for a central bank with no balance sheet
How a central bank can do things with words. Imagine a central bank with no assets and no liabilities. It does not issue money. It does not buy or sell anything. It does not regulate the commercial banks. The only thing it controls is one word in the dictionary. Every morning it edits the dictionary, […]
Never mind the flatness, feel the length (of the observed Phillips Curve)
Sorry. It suddenly came to me this morning: a simple (and now blindingly obvious) way to reconcile an apparent contradiction in my own thoughts. As a lot of people in different countries have noticed, the observed Phillips Curve now looks very flat. Certainly a lot flatter than it did in the past. And I've been […]
Monopoly/monopsony power and hungriness for sales/purchases
This is actually about the minimum wage debate. And I'm more asking you a question than giving you my answer. Bear with me for a minute. You are a seller. You sell a good for money. You have some degree of monopoly power over the good you sell. You face a downward-sloping demand curve, you […]
Equalising the twin markups in a monopolistically competitive macroeconomy
The first markup is the markup of Price over Marginal Cost, required for individual firms' profit-maximisation. This is related to the elasticity of an individual firm's demand curve. The formula is: P/MC = [1/(1-1/e)]. The second markup is the markup of Average Total Cost over Marginal Cost. Free entry and exit of firms requires a […]
Old and New Keynesian Multipliers: Cross-Section and Time-Series
Suppose you had an economy where half the agents are "Hand-To-Mouth" and have a Marginal Propensity to Consume of one (Ct=Yt), and the other half are "Autonomous" and have a Marginal Propensity to Consume of zero (Ct=At where At is exogenous with respect to their current income). If the two types of agents initially have […]
Real Interest on Reserves
A central bank issues currency and wants to target the price of apples in terms of that currency. So it opens an apple window, and posts a sign promising to buy or sell unlimited quantities of apples at $1 each. Done. Arbitrage ensures that the market price of apples in the economy is always $1 […]
Worthwhile Canadian Initiative 
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