Category Macro
“Fire-and-forget” fiscal policy
If you wanted to build a "fire-and-forget" fiscal policy, or where you at least minimised the chances you would ever again want to change any of the tax and spend rules, what would it look like? I was thinking about Stephen's question: if we had a good enough social safety net, wouldn't that create a […]
Saturday Night Fever: Roger Farmer, multiple natural rates, search theory, and share prices
Roger Farmer is an old grad skool buddy. We were in the same MA and PhD class at UWO in the late 1970's, though we have lost touch a bit over the decades. That's a sort of disclaimer. Roger preferred punk to disco; I think he was right on that score. But Peter Diamond's "A […]
The simple money supply multiplier model and simple keynesian multiplier model
These two first-year textbook models — the simple money supply multiplier model; and the simple keynesian income-expenditure multiplier model — are formally identical. Translated into math, or game theory, you can't tell the difference between them. They contain exactly the same important insight: that what is true for the individual bank/household is not true for […]
Rethinking Canadian macroeconomic policy
Olivier Blanchard and a couple of colleagues at the IMF have circulated a paper with the title "Rethinking macroeconomic policy". Some of the ideas that are touched upon include Increasing inflation targets to 4% instead of the 2% goal that is more popular among central bankers. The idea is that when inflation and interest rates […]
Fallacies of composition and decomposition: the supply of money and reserves
Does the supply of reserves matter? It certainly matters in the simple textbook ECON 1000 model of the money multiplier. But is that model fatally flawed, especially in the context of zero required reserves, and where central banks target an interest rate, so the quantity of reserves is demand-determined? Some people do argue that the […]
Strategy space and monetary policy
Or, "Why central banks should stop talking about interest rates". Game theorists know that a change in the "strategy space" can change the equilibrium of a game. The classic example, now over a century old, is the difference between the Cournot-Nash equilibrium and the Bertrand-Nash equilibrium in oligopoly theory.
Infinite equilibrium asset prices?
Could there ever be conditions under which the equilibrium (real) prices for some assets are infinite? What would happen to an economy as it approached those conditions? Would those prices keep climbing to the skies heavens, then collapsing in waves of fear and panic? I'm trying to figure it out.
Is Barter Countercyclical?
The Wall Street Journal (H/T Peter Gordon) says that barter is countercyclical. Barter increases in recessions, like now, and decreases in booms. Can anyone confirm this? Because that fact (if it is a fact) is really important in understanding the nature of business cycles and recessions. Countercyclical barter is exactly what one would predict from […]
Can ALL assets be overvalued?
I was going to make the title: "Can ALL assets be overvalued? The Economist (mag) vs. Cambridge(US) vs Cambridge(UK) vs. the Austrians", but it was be too long. I saw the cover of the Economist this morning. The usual lovely picture, plus the headline "Bubble Warning; Why Assets are overvalued". I think there's a theoretical […]
What is a “structural” deficit?
Macroeconomists like to divide an actual deficit into two components: a cyclical deficit and a structural deficit. It reflects their distinction between automatic stabilisers and discretionary fiscal policy. I don't think that distinction is as clear and useful as macroeconomists think it is. And in ordinary language a "structural" deficit is one that is hard […]
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