Category Monetary policy
My macro framework
FWIW. Since everyone else seems to be doing this. 1. There are n different types on labour. 2. Each individual has an endowment of one type of labour, and wants to trade some of it for some of the other types of labour. 3. But (double) coincidence of wants is rare, so they use money […]
Secular stagnation and Mutual Fund Marxism
Suppose the government issued a financial asset that, adjusted for risk and liquidity, promised a higher rate of return than any alternative asset. The government can do this, because it has the power to tax. Everybody prefers holding that government-issued financial asset to any other asset. There would be an excess demand for that government-issued […]
Old Keynesian vs New Keynesian fiscal policy
Mostly for non-macroeconomists. I first learned macroeconomics in the very early 1970's in the UK. I learned that the macroeconomy was not automatically self-equilibrating, and that the government should use fiscal policy to target "full employment" (aka "potential output"). The government should loosen fiscal policy when the economy was below potential and tighten fiscal policy […]
One awkward question about Stephen Poloz’s speech (on Integrating Financial Stability into Monetary Policy)
Suppose the Bank of Canada were following a 5% NGDP level-path target. And suppose that actual NGDP was on target, and was expected to remain on target in future. And suppose you were Governor, and one of your advisors gives you some important news. Financial markets are in a bubble, so the prices of financial […]
Keynes just left Canada
Paul Kugman's post title is "Keynes comes to Canada". Paul is wrong. Keynes was in Canada, but he just left. Look at this graph from Matthew Klein (a very good article, by the way): The other bit of information you need to know is that the Bank of Canada hit the Zero Lower Bound in […]
Negative interest vacuum-cleaner Gesellian money for broke central banks
[I can't decide whether this thought-experiment has any policy relevance. I hope not, but who knows what the future will bring? It came to my mind after reading a (more policy-relevant) post by Simon Wren-Lewis.] 1. Helicopter money is when the central bank prints money and puts it in people's pockets. Vacuum-cleaner money is the […]
Two types of liquidity “shortage”
If I said that the recent recession was caused by a shortage of liquidity, most people would say I was mad. "Look how easy it is to get a loan, at such low interest rates!" In hyperinflations, the price of liquidity is extremely high. If the price level is doubling daily, then currency pays a […]
Fiscal offset of silly QE
This is (primarily) for Brits. 1. Suppose I normally buy 10 apples at $1 each. Then the government taxes me $3, buys 3 apples, and gives me those 3 apples. I will now buy 7 apples instead of 10. The net result on my consumption of apples, and everything else, is zero. The only difference […]
Inflation in Lake Wobegone
In Lake Wobegone there are 1+n firms. The first firm raises or lowers its price by a mean-zero random amount, e. The remaining n identical firms wait to see what the first firm has done, then raise their prices by B times the average expected inflation rate, or lower their prices by B times the […]
The (near) inevitability, and who and when, of Helicopter Money
Helicopter Money is (almost) inevitable. The only questions are: who does it; and when do they do it. And we can't (easily) tell when it gets spent, and what it gets spent on, because money is fungible and we don't observe counterfactual conditionals. Let's make some ballpark-correct assumptions. Assume currency pays 0% interest, and the […]
Worthwhile Canadian Initiative 
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