Category Macro
Weird Fiscal multipliers in New Keynesian models under ZIRP
Paul Krugman has bravely and commendably been trying to understand intuitively the underlying reasons for the big differences between fiscal policy multipliers in a couple of New Keynesian models. Someone needs to do this job. (Take as read a general rant against economists who write down fancy mathematical models without understanding or explaining the results […]
Rambling thoughts on Canadian house prices and global savings gluts
This isn't a very focused post. There are two sets of thoughts bubbling through my mind this morning. The first is about Canadian house prices; the second is about global savings gluts. But the two topics are very definitely related. There is a lot of anecdotal evidence of a pick-up in at least some Canadian […]
Don’t borrowing-constrained households spend more of a tax cut??
One of the standard arguments against the Ricardian Equivalence Proposition is that some households are borrowing-constrained. They want to borrow and spend against their future income, but can't find anyone to lend them money. So when the government gives them a tax cut, financed by higher future taxes, the government is effectively lending them the […]
Monetary and fiscal policy ought normally move together
We normally think of monetary and fiscal policy as alternative methods of stabilising fluctuations in aggregate demand. It is only in abnormal times, like the present, when central banks' interest rate instruments are at or near the zero lower bound, that we might want to use both monetary and fiscal policy together. Only if we […]
In praise of MV=PY
I used to think that the Equation of Exchange, MV=PY, was just a different way of writing the Cambridge Equation, M=kPY, with V=1/k. And of the two I preferred the M=kPY formulation, because it looked more like a money supply=money demand condition, and reminded us that V=1/k must be interpreted as desired velocity, if MV=PY […]
Non-super-neutralities: an open invitation (to Austrians especially)
There is nothing new in the substance of this post; it is an exposition of standard monetary theory. (Though some might find the exposition interesting.) It is an open invitation for people to tell me where standard monetary theory of the effects of inflation might be wrong. It's an invitation open to all, but I […]
Re-thinking the lags in monetary policy — it depends on the shock
The lag in the effect of monetary policy on output employment and inflation may or may not be a problem. It depends on the nature of the shock: whether the shock has a shorter or longer lag than monetary policy. It should not have been a problem in the current recession, where the shock was […]
Talking down the Loonie?
The Loonie (Canadian dollar) has appreciated against the US dollar recently. The Bank of Canada expressed its concern in Thursday's Announcement. "In recent weeks, financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly. If the unprecedentedly rapid rise in the Canadian dollar (which reflects a combination of higher […]
“John Cochrane’s” argument for fiscal stimulus
I just finished reading John Cochrane's paper, where he applies the fiscal theory of the price level to the current crisis. (Thanks Adam P!). OK, I admit I didn't really read it thoroughly; I skimmed it. It's full of good insights, and also bad mistakes. The best thing to do with a paper like that […]
The IS curve
You might think you understand the IS curve. You probably don't. And your failure to understand it properly means you don't understand how an excess demand for money is an integral part of the theory of the IS curve, underlying any state of deficient-demand unemployment. And you don't understand the monetary transmission mechanism properly. I […]
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