Category Monetary policy
Bank walks and options
Why did it takes so long? Currency and deposits are imperfect substitutes. Currency is more convenient for some things, and deposits are more convenient for other things, so many people hold both. If a banking system is working normally, deposits include the option to convert them into currency at a fixed exchange rate (par). (And […]
Mark Sadowski’s correlations deserve a response
They are just simple correlations, but a sample of 34 (split into two groups) beats a sample of the one country the economist just happens to live in. Correlations of data are themselves data, and it is our job to try to interpret (or explain) the data. This is how I (tentatively) interpret those correlations: […]
A New Central Bank Blog
The Bank of England has just launched its own staff blog: Bank Underground. The Managing Editor is John Lewis and the blog is where the staff can air their views as part of the Bank of England becoming more open to the outside world.
Another tiny money/macro model for microeconomists
With monetary exchange, and both recessions and booms. This one is based on Nick Edmond's model. You can think of it as a cross between my previous model and what Paul Krugman calls "The World's Smallest Macro Model" (pdf). This model really does work in a 3D Edgeworth Box. (I messed it up a bit […]
I need a 3D symmetric Edgeworth box to explain money/macro
The new world's simplest money/macro model? OK microeconomists, here's some money/macro for you. I want a very simple model. The model will be extremely unrealistic. It won't look anything like the real world. But it will help me explain one very important fact about the real world. It will be a model of a pure […]
Back propagation induction does not work under inflation targeting
Suppose you lived in a world where, whenever the price level fell/rose by 1%, the central bank responded by decreasing/increasing the base money stock by the same 1%. A world like that would not have a long-run Omega point, from which some present equilibrium can be pinned down by back propagation induction. That's the sort […]
Econometric estimates of fiscal policy multipliers
New Keynesian macroeconomics says that a (temporary) increase in government spending will cause an increase in the natural real interest rate. And unless the central bank increases the actual real interest rate by an equal amount, the result will be an increase in Aggregate Demand, which will cause an increase in real output and/or inflation. […]
What the non-lunatic right believes about macroeconomic policy
[Well, I like to think I'm a non-lunatic, when I'm having a good day. But I might be speaking only for myself.] Brad DeLong (a card-carrying member of the non-lunatic left) says: "The non-lunatic right holds that market economies are indeed macroeconomically unstable but they can be balanced by minimal interventions in aggregate variables: that […]
Fiscal shocks as relative demand shocks
Take a macro model of an economy with two different goods being produced; call them Carrots and Grapes (there can be many different varieties of carrots, and many different varieties of grapes, if you like). Suppose the demand for grapes falls, because of a change in preferences. Will there be an equal and offsetting increase […]
Why can’t central banks monetise something else?
Other than government bonds? That's a rhetorical question. They can. David Andolfatto has gone over to the Dark Side, and all the lefty keynesians are celebrating their new convert to Big Government Deficits. (Tongue in cheek warning.) Not so fast. David imagines a world where the demand for (central bank money + government debt) is […]
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