Category Macro
A monetarist search model of keynesian unemployment
This post was inspired by Steve Williamson's post on Roger Farmer. Steve has a model(pdf) that he sees as capturing the essence of what Roger is saying. Leave aside the question of whether Steve's model is a good interpretation of Roger. I like Steve's model because it's clean and simple. But Steve's model is a […]
The Canadian Taylor Curve — and the direction of causality
This is from my Carleton colleague Hashmat Khan: There is a strong negative relationship between investment and unemployment in Canada. The data on private business fixed investment from the past 35 years confirm it. The measure of investment is non-residential structures + residential structures + machinery & equipment. The correlation between investment (relative to GDP) […]
The preponed government spending multiplier may exceed one
From very casual observation, I get the sense that a lot of extra government spending in the last couple of years was to build stuff that would have been built anyway. They just built it a bit earlier. It was preponed government spending. Am I right? Anyway, I'm going to assume I'm right, because it […]
Do Keynesians understand their own models?
If we lived in a world of barter exchange, or in a world where people could use barter exchange at minimal cost, Keynesian macroeconomics would make no sense whatsoever. That is not, of course, a criticism of Keynesian macroeconomics. We do live in a world where people use monetary exchange, not barter. And people (usually) […]
Ricardian Equivalence does not assume full employment
The Ricardian Equivalence Proposition asumes many, many things. But full employment equilibrium (however you define "full employment") is not one of those things it assumes. I disagree with Antonio Fatas (and others who believe the same).
Ricardian confusions squared
Hang on now, Paul, Mark, Progrowthliberal, and Antonio Fatas. Justin Yifu Lin (pdf) is basically right. He's making an important point. It's similar to one I made a couple of years back. Sure, a temporary increase in useless government expenditure, even under Ricardian Equivalence, will give a bang for the buck. But it's a totally […]
The conflicting claims theory of inflation, and unemployment
The conflicting claims theory of inflation goes like this. Suppose we start in equilibrium with 10 people in an economy each earning 10% of total income. Then all of a sudden each decides he deserves 11% of total income, and raises his price accordingly. The total claims add up to 110% of total income. In […]
Why New Keynesian macroeconomists are against labour unions
Like all New Keynesians, I believe two things that are apparently contradictory: 1. We each get paid too much; 2. Because of 1, we all get paid too little. It only makes sense if you understand fallacies of composition. What is true of each part isn't necessarily true of the whole.
Divine Coincidence Failure. UK lessons for the Bank of Canada
According to "divine coincidence", the monetary policy that is best for stabilising inflation is also best for stabilising real output. Divine coincidence seems to be holding up fairly well in Canada. But the recent UK experience is a case where divine coincidence has failed. The Bank of Canada's inflation target is up for renewal this […]
Tatonnement: in Walras, PSST, and monetary disequilibrium
Walrasian general equilibrium theory models the economy as a system of demand and supply equations. The quantities of goods traded, and the prices at which they are traded, are the solution to that system of equations. Who solves those equations? A fictional Walrasian auctioneer, who calls out prices at random, asks people their demands and […]
Worthwhile Canadian Initiative 
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