Category Macro
The Holy Roman Eurozone
I started writing this post yesterday. It's already out of date. This is what I wrote yesterday; I will continue the post below. Greece has now gone, at least in expected value terms. With bond yields increased to over 13% today, there is no way I can see Greece running a primary surplus big enough […]
Minimum wages and employment
"An increase in the minimum wage will raise workers' incomes, which will increase aggregate demand, which will increase output and employment. So would an increase in union wages." I remember hearing that argument a lot in the 1970s. You don't hear it as much nowadays, but it still lives on in the underworld of economic […]
How the hell can we tell (if fiscal policy worked)?
I feel guilty about not wading into the recent debate about whether fiscal policy helped the Canadian economy recover from the recession. It's one of the things I am supposed to know something about — basic macro. But there's a reason I couldn't be bothered to take sides and join in. The patient is ill. […]
The supply and demand for bubbles (in pictures)
I have drawn a picture of the supply and demand for bubbles. I think this picture might make it easier to understand what I was saying in my previous post on the need for a bubble. If the natural rate of interest, in an economy without a bubble, is below the growth rate of the […]
Do we need a bubble?
There is something economists have known since 1958 that we don't talk about much, except in private, like in economics journals that nobody else reads. It's a bit too weird. There are two sorts of world. In a normal world, the equilibrium rate of interest is above the growth rate of the economy. In a […]
Why the LM curve is (usually) vertical, and the AD curve (usually) horizontal
Short version: because the Bank of Canada (or any inflation-targeting central bank) makes the LM curve vertical and the AD curve horizontal. Long version below the fold:
The Division of Labour between interest rate and exchange rate
Stephen's graphs show quite clearly that Canadian monetary policy must tighten before US monetary policy. I'm convinced. But what does monetary policy mean? In this context, I'm going to ignore other interpretations, and just focus on interest rates and exchange rates. What is the division of labour between increasing interest rates and appreciating exchange rates? […]
Canada, Australia, and New Zealand; does the Zero Lower Bound matter?
I want to compare the economies of Canada, Australia, and New Zealand over the last couple of years. I know I will get things wrong, and leave important things out. That's what comments are for. Especially comments from Australia and New Zealand. Why these three countries? Apart from any historical, cultural, and political similarities, all […]
Some simple arithmetic of debt/GDP and population growth
I had always known that a given debt/GDP ratio would be more worrying for a country with declining population than for a country with a growing population. There will be fewer future people to carry the same future burden. But I had never sat down to do the arithmetic, until just now. What surprised me […]
Shouldn’t Taylor Rules include Fiscal Policy? The Fiscal exit strategy.
Most economists believe that for a given path of nominal interest rates chosen by the central bank, a looser fiscal policy (higher deficits, through lower taxes and/or higher spending) will cause higher Aggregate Demand, and therefore higher real output and/or inflation. Therefore, if a central bank is choosing a path for nominal interest rates in […]
Worthwhile Canadian Initiative 
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