Category Monetary policy
New Keynesian neo-fiscalists for increasing austerity
I was off at the cottage when Simon Wren-Lewis and Paul Krugman responded to my post on neo-fiscalism. Amusingly, given Simon's metaphor, the handbrake on the MX6 seized on as I was driving, slowing me down and creating a nasty smell. I did a fiscal bodge-job with a screwdriver to free it, and did a […]
Legislated Taylor Rules again
This is in response to the post (and associated paper) by Alex Nikolsko-Rzhevskyy, David Papell, and Ruksandra Prodan (hereafter NPP) arguing for a legislated Taylor Rule in the US. A central bank reaction function tells us how the central bank sets its monetary policy instrument (for example a nominal interest rate) as a function of […]
Some simple arithmetic for mistakes with Taylor Rules
[Updated to fix arithmetic errors spotted by Min. A big thank you to Min! (I did not leave my embarrassing original mistakes in, because I wanted to keep it clear). The effects I am talking about are even bigger now.] Sometimes I think that US monetary policy is too important to be left to the […]
A simple test of simple rules against actual policy in the actual economy
A "simple rule" is a formula that tells a central bank how to set the nominal interest rate as a fixed function of a small number of variables. The Taylor Rule, which sets the nominal rate as a function of the gap between actual and target inflation, and the gap between actual and potential output, […]
Insufficient Demand vs?? Uncertainty
It's a false dichotomy. Just a quickie, in response to Noah Smith and John Cochrane. John Cochrane says: "John Taylor, Stanford's Nick Bloom and Chicago Booth's Steve Davis see the uncertainty induced by seat-of-the-pants policy at fault. Who wants to hire, lend or invest when the next stroke of the presidential pen or Justice Department […]
Neofiscalist delusions?
It seems I need to respond to Paul Krugman. "The neomonetarist movement starts from an acknowledgement of reality: shortfalls of aggregate demand do happen, and they do matter, and we need an answer. Like the original monetarists, however, they reject any government role in the form of discretionary fiscal policy. Instead, they argue that the […]
Repeat after me: people cannot and do not “spend” money
John Maynard Keynes famously wrote that: "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." A modern example of that dictum, relevant to the economy, policy, and markets, is the widespread view that people can "spend" their money, as if money represented a […]
House prices and inflation targeting
"Should house prices be included in the CPI?" is not a good question to ask. The best answer to that question is another question: "Why do you want to know?" Or, "It depends; what are you planning to use the CPI for?" Instead, it would be better to ask the question in a different way […]
Bank runs, keynesian multipliers, monetarist cold potatoes
They are all the same. Do bank runs cause recessions, or do recessions cause bank runs? Both. Neither. They are the same thing. (This post isn't as clear as I want it to be, because my mind isn't as clear as I want it to be, so read at your own risk.) I was making […]
John Cochrane on Monetary Policy with Interest on Reserves
Central banks are usually owned by governments, and transfer their seigniorage profits to those governments. This creates a link between monetary and fiscal policy. But the presence of that link says nothing about the direction of causation. John Cochrane (pdf) says that central banks' paying interest on reserves allows them to conduct monetary policy independently […]
Worthwhile Canadian Initiative 
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