Category Monetary policy
Alpha, beta, and gold
Central banks issue currency. (They issue reserves too, but "reserves" are just the name we give to central bank currency held by commercial banks in electronic form rather than in paper form, and it makes no difference whether money is printed on paper, on plastic, or on computer disks.) Commercial banks issue deposits. (They used […]
FTPL: a federal or provincial issue?
[Apologies for the title. It's a Canadian joke, about our fixations, that can be told various ways, but always ends with the punchline: "Elephants: a federal or provincial issue?"] Does fiscal policy affect the price level? If so, are we talking about federal fiscal policy only, or are we talking about provincial fiscal policy too? […]
Who would ever lend to an FTPL government?
Think back to philosophy class: Would you ever believe the promise of an Act-Utilitarian? No. An Act-Utilitarian will perform action A if and only if action A will maximise the sum of expected present and future utilities. His past act of having promised to do A is not a reason for the Act-Utilitarian to perform […]
Currency is alpha; bonds are beta
If you understand the title you understand the post. It's obvious really. Betas peg their exchange rate to alphas; alphas do not peg their exchange rates to betas. Beta's promise to redeem their liabilities for alpha liabilities at a fixed exchange rate; alphas make no such promise the other way. So alphas lead and betas […]
The degeneracy of FTPL
Consider a corporation that earns a flow of (real) profits S(t). Assume for simplicity the corporation finances itself by issuing only shares (it does not issue bonds). Let the stock of shares be M(t). Let the reciprocal of the share price be P(t), so the share price is 1/P(t), and so the total market value […]
Principal-agent problems and level-path targeting
Suppose you hire an agent to do a job. The agent's level of production p depends on the agent's effort m and on a mean-zero shock from nature s. So p = m + s. You observe p, but you do not observe m or s. Your agent observes s and p only after he […]
Stabilising deflation under the gold standard
We can learn from history, but we need to be careful about the lessons we learn. If the historical monetary policy regime is different from today's monetary policy regime, stabilising deflation in history might be destabilising deflation today. Put the price level P on the vertical axis, and real output Y on the horizontal axis. […]
Short Run vs Long Run order of moves between monetary and fiscal authorities
Who moves first, and who moves last? In a game between the monetary authority and the fiscal authority, the order of moves matters. Just like in Stackelberg duopoly, where the effect of an increase in one firm's quantity will depend on whether the other firm is the leader and has already chosen its quantity, or […]
Fragility of Nash equilibria and Neo-Fisherites
I hope that I am reinventing the wheel by writing this post. And that some game theorist has already written something much better on the same subject. (If not, then they should have done.) But I need a game theorist to tell me about it and explain it to me, in simple language (if possible). […]
Reverse-engineering David Andolfatto’s and Stephen Williamson’s Neo-Fisherian paper
Stephen has a new post defending the Neo-Fisherian perspective. He links to a new paper he and David wrote (pdf). It is not an easy paper. This is what I think is the intuition behind the results. Start with the Fiscal Theory of the Price Level, where B is the nominal stock of government "bonds", […]
Worthwhile Canadian Initiative 
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