Category Macro
“Fire!” in Noah’s Flood. Optimal scare tactics?
Suppose I were an American blogger. Suppose I had a very large popular following, that believed everything I said. But suppose the people who actually influenced and controlled policy thought I was a total airhead. I'm not sure what I would do, but I know what I would be very tempted to do: yell "Inflation […]
Confidence: In what?
It's a very old argument, and there's some truth in it. Financial crises and recessions are caused by a loss of confidence. And policies that might normally help end the recession might actually make things worse, if they worsen confidence. Confidence in what? The problem right now is that there is too much confidence: in […]
Sticky wages and unemployment rate differentials
This is a short note to add to Bryan Caplan's note on Tyler Cowen's post on sticky wages. Suppose workers differ in quality, where "quality" is defined as "quality in the eyes of potential employers". In equilibrium there will be an equilibrium relationship between the distribution of wages and quality. Higher quality workers will get […]
New Keynesian macroeconomics doesn’t make sense to me any more
WARNING: this post is not quite ready for prime-time. But I can't figure out how to re-write it before I leave to England this evening. And we were arguing about this stuff in comments on my Tinkerbell post, so I'm just going to post it anyway. Old Keynesian macroeconomics makes sense. It might be right, […]
Tinkerbell in New Keynesian models
This post is not a critique of Paul Krugman's critique of Scott Sumner (though that's what got me thinking along these lines). It's a critique of all of us, especially all of who use New Keynesian models (which includes me). Framing matters. Tinkerbell is real and all-pervasive. She flies in New Keynesian models all the […]
Run, don’t walk, up the down escalator
If you find yourself going down the down escalator, and suddenly realise you want to go back up, you don't delay, and you don't walk back up. You turn around immediately, and you run as fast as you can till you get to the top. Over a year ago, Mark Thoma introduced his icy hill […]
Why it’s a really good thing that the ECB has overpaid for Greek junk bonds
Those of us who argue for monetary policy as a way for countries (and fake countries like the Eurozone) to escape a recession, even in an alleged "liquidity trap", recognise that any increase in the money supply should be permanent, and perceived as permanent, to do much good. Even some Keynesians, like Paul Krugman, recognise […]
Only one degree of freedom per Fixed Announcement Date
The Bank of Canada's announcement today, raising the overnight rate target from 0.25% to 0.5%, wasn't a surprise. The surprise was the kicker at the end: "Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments." Most people were expecting […]
The (mis-)coordination of monetary and fiscal policy
Suppose the monetary authority says "We already have interest rates at zero, so monetary policy can do no more to increase aggregate demand. But fiscal policy can do more…" Suppose the fiscal authority says "We already have very high deficits and debt, so we are scared of future insolvency, so fiscal policy can do no […]
How is model-based macroeconomic forecasting possible?
I can figure out how some things work. I can't figure out how other things work. But there are some things I can't figure out how it's even possible for them to work. Using macroeconomic models to make macroeconomic forecasts falls into that third category of things. I can't see how it's even possible to […]
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