Category Monetary policy
Two simple games, for game theorists and Neo-Fisherites
I'm hoping some game theorists will chime in here; it doesn't matter if you don't get macro. I need your help, and want your thoughts on my intuitions: Not all Nash equilibria are created equal. Game A. There are n identical players who move simultaneously. Player i chooses Si to minimise a loss function Li […]
Interest-free loans from the central bank to the government
What is the difference between: A. I print $100, and give it to you as an interest-free loan. B. I print $100, lend it to you at 5% interest, so you give me $5 per year, and then I give that $5 per year straight back to you. C. I print $100, lend it to […]
Good shocks, bad shocks, and shocks that cause a monetary coordination failure
Just because a shock is a bad shock doesn't mean it should cause a recession. A recession is a monetary coordination failure. Monetary coordination failures are caused by monetary policy. Start with a Robinson Crusoe economy. By assumption, Robinson Crusoe always allocates his resources perfectly to maximise his expected utility given his information about the […]
Why did (Canadian) inflation-targeting work in 1996 but fail in 2008?
In both 1996 and 2008 the Canadian economy was hit with a big shock. The 1996 shock was the change in fiscal policy, turning a large deficit into a large surplus. The 2008 shock was the global financial crisis. (Canada didn't really have much of a financial crisis; no banks failed, as usual.) In both […]
Interest rate control as beta-anachronism
I want to make a minor point to follow up on something important that David Glasner said: "Nevertheless, our basic mental processes for understanding how central banks can use an interest-rate instrument to control the value of money are carryovers from an earlier epoch when the value of money was determined, most of the time […]
Ottawa as Robin Hood
As the eurozone bumps along from major crisis to minor crisis to existential crisis, the point is often made that a key feature of successful monetary unions that is missing in the eurozone is a system of transfers. These transfers act a sort of compensation for renouncing the option of pursuing an independent monetary policy.
Thoughts on reading Silvio Gesell on money
I hadn't read Silvio Gesell. I only knew about him from Chapter 23 of Keynes' General Theory, from Miles Kimball's post on Gesell's plan for negative interest rates on money, and from the Wikipedia entry. But I'm halfway through writing a paper on Keynes vs Gesell, so I thought I should probably actually read him. […]
Proxies for monetary disequilibrium
Perhaps we should think about monetary policy this way. If all prices were perfectly flexible, monetary policy wouldn't matter much. Monetary policy matters because not all prices are perfectly flexible, which means that bad monetary policy causes monetary disequilibrium, which is what happens when prices want to change but don't change. Recessions and booms are […]
Individual and aggregate, marginal and total, incentives to cut prices in a recession
The purpose of this post is to lay out the intuition behind my discussion/argument with Steve Randy Waldman. (I'm not sure whether this post will help or hinder my discussion with Steve. But students of New Keynesian macro might find it useful regardless.) We need to distinguish between the individual and aggregate incentives of cutting […]
Coordination problems and discontinuities
Just a quickie. This is for Steve Randy Waldman, who says "Downward price stickiness is a coordination problem, plain and simple." It is a coordination problem (I think), but it's a bit more than just a coordination problem. There must be something else too, like a discontinuity, or something, to get that coordination problem. Let […]
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