Category Macro
The bond “bubble”, and why we should be worried about it
In one important sense, there is a "bubble" in US government bonds, and we should be worried about it.
What standard monetary theory says about the relation between nominal interest rates and inflation
This is what I understand "standard" monetary theory to say about the relation between inflation and nominal interest rates.
Why “everyone” should be forced to take Intro Economics
The reason is not what you are expecting. It's because maybe if he had been forced to take Intro Economics, the 12th President of the Federal Reserve Bank of Minneapolis, who holds a PhD in Economics from the University of Chicago, who is a specialist in money and macro, who has a CV that creams […]
Monetary policy as asset prices
As every economist knows, interest rates don't really exist. They are a mathematical construct derived from observed bond prices. Take a really simple example: suppose a bond (OK, a bill, if you want to be picky) promises to pay $100 one year from today. We observe that bond to be trading at a price of […]
Liquidity and the housing market Phillips Curve
I think it is a stylised fact of the housing market that, on average, houses sell quickly when house prices are rising, and sell slowly when house prices are falling. (I am talking about house prices rising or falling relative to trend). There is a negative correlation between the rate of change of house prices […]
Cash as the real real option — to do anything
Option theory was originally about financial assets called options. A put option is a derivative that gives you the right to sell some asset at a pre-specified price. A call option is a derivative that gives you the right to buy some asset at a pre-specified price. They are called options because you have the […]
Rational vs adaptive expectations: a false dichotomy
Arnold Kling has posted another good installment of his Macro Doubtbook. But it contains what I think is a false dichotomy between adaptive (habit) and rational (model-based) expectations. Since Arnold is not alone in thinking this way, I thought I would do a short post to explain why I think it's wrong.
Canadian monetary policy if half the world turns Japanese?
The latest Statistics Canada Labour Force Survey confirms the impression that the Canadian economy is recovering well. Inflation is still a little below the 2% target, but should rise as the recovery continues. The Bank of Canada's overnight rate target is at 0.50%, which is much lower than normal, and is clearly negative in real […]
The effect of expected future taxes on current investment: how big?
If the government runs a fiscal deficit now, that may mean that future taxes increase. The expectation of those future taxes may reduce the expected after-tax marginal return to current investment. That may reduce current investment, and may offset some of the effects of the fiscal deficit on aggregate demand. This mechanism for crowding out […]
Why I’m still a sticky-price macroeconomist, despite everything
David Andolfatto has written a very good post criticising sticky-price macroeconomics. This post really needed to be written. It explains why a minority of macroeconomists don't like the mainstream assumption of sticky prices. After you have read it you should understand why those crazy freshwater macroeconomists aren't quite so crazy after all. I agree with […]
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