Category Macro
Liquidity, solvency, fire-sale and fair prices, and TARP: a simple model
Nick Rowe follows up his post on the origins of the crisis with some thoughts about how to deal with it: How is the Troubled Asset Relief Program supposed to resolve the problem of bank failures? I haven’t seen any clear answer, so thought I would sketch out the skeleton of a simple model where […]
Some thoughts on the bubble/s and financial crisis/es
Nick Rowe provides us with some talking points on how we all got into this mess: I am taking part in a roundtable on the financial crisis next week at Carleton (Wednesday 8 October 5.30-7.00 in 360 Tory, just in case anyone is interested in attending). The audience and other panel members will be mostly […]
Why the US GDP numbers aren’t so good, and why the Canadian GDP numbers aren’t so bad
The recent GDP numbers from both sides of the border are somewhat puzzling: How can strong US GDP growth be reconciled with all the other bad news about the US economy? How can weak Canadian GDP growth be reconciled with all the other really-not-all-that-bad news about the Canadian economy? Here are a couple of graphs […]
On the GDP-employment disconnect
In both the US and Canada, employment and GDP numbers are going in different directions. Employment rates are at all-time highs in Canada, and they’ve been falling (from a not-particularly high starting point) in the US. OTOH, US GDP numbers have been outperforming those in Canada. Why? I suppose one place to look is the […]
Connecting profits and investment
Paul Krugman’s column on the apparent disconnect between high profits and low investment (as ever, the indispensable Mark Thoma provides the reference) has a bit of déjà vu for Canadian readers: haven’t we seen this before? But more fundamentally, I don’t see why we should expect that there should be a stable relationship between current […]
A demographic explanation for the decline in labour’s share of income
The Economist reports on a study by the IMF (32-page pdf) that attempts to explain how and why labour’s share of income has been decreasing over the past couple of decades: There’s one factor that they don’t seem to have examined: demographics. One of the implications of an aging population is an increase in the […]
Welfare costs of the business cycle and the equity premium
In many ways, Robert Lucas’ famous estimate of the welfare costs of the business cycle is a restatement of the equity premium puzzle. If you take a standard model in which consumer preferences are time-separable, iso-elastic and have ‘plausible’ levels of risk aversion, then the fluctuations in marginal utility associated with unanticipated movements in consumption […]
Labour terms of trade and real wages
Several commenters on the previous post on the apparent disconnect between productivity and wages in the US pointed out that the choice of the deflator used to calculate real compensation might be a partial explanation. The standard theory of the firm expresses the real wage in terms of the price of output – not the […]
Why we should stop worrying about the decline in labour’s share of income
…and why we should start worrying that it may not be falling fast enough. Here is a plot of the labour’s share of national income in the US: This ratio is countercyclical (profits are more volatile than wages), and although its range of variation is large enough to dominate the secular trend, the trend is […]
The yield curve shifted, then tilted
There seems to be little doubt that beliefs about a US slowdown were sharply revised over the summer. Here are the US and Canadian yield curves for March, June and September: And here are the interest rate differentials: Perhaps the CAD hasn’t yet finished appreciating against the USD.
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