Category Monetary policy
100% reserves via interest on reserves
Start with a fractional reserve banking system, like Canada's for example. Canadian banks are not required by law to hold any reserves, and choose to hold very little. They hold a small amount of currency, plus a very small amount of deposits at the Bank of Canada. Those deposits pay interest, but that rate of […]
How long is the short run? The macroeconomics of “doing nothing” revisited
The answer we normally give, when teaching intro macro, is: "It depends on price stickiness; if prices are very flexible it will be short, and if prices are very sticky it will be long." A better answer would be: "It depends on monetary policy; if monetary policy is very good it will be short, and […]
The New Keynesian conspiracy
New Keynesians believe that Say's Law is false. But they want the central bank to try to make Say's Law look true. New Keynesians believe that real business cycle theory is false. But they want the central bank to try to make real buiness cycle theory look true. New Keynesians believe that the loanable funds […]
Money, barter, the clearing house, and balance sheet recessions
I think David Beckworth is onto something important here. What looks like a balance sheet recession can in fact be caused by an excess demand for money. The hairdresser cuts the hair of the manicurist, who does the nails of the masseuse, who massages the hairdresser. We have a Wicksellian triangle, with no double coincidence […]
Monetary monarchy
Speculative musings, from an inadequate historical background. We tend to take it for granted that the world looks like this, from a monetary perspective: The world is divided into currency areas. Each currency area has one alpha bank (the king). All the other banks are beta banks (subjects, who follow the king). The beta banks […]
Shadow banking as required reserve tax avoidance?
This is speculative. I don't know whether it works empirically. Or, I should say, I don't know how much it works empirically. The effect I am talking about here might be large, and explain almost everything. Or it might be small, and explain almost nothing. I'm just throwing it out there. Legally required reserves, if […]
Deflationary banks
It's good to think about weird worlds, which you know are different from the real world. It helps you understand the real world better. Here is a weird world where commercial banks' wanting to expand loans and deposits would reduce aggregate demand and cause deflation. But the only weird assumption is that currency and deposits […]
Temporary vs permanent money multipliers
"Otherwise what I was mostly trying to suggest was that the banks anticipate the fact that the central bank won't let them double the supply of money and factor this into their loan and deposit pricing. The idea is that the current amount of deposits is not so much based on the curren[t] supply of […]
What is a “managed exchange rate”?
It's a relative thing. I think it can only be defined relative to some specified alternative, like inflation targeting. It doesn't mean anything otherwise. There are n different things a central bank could target, where n is an extremely large number. (Strictly, n is infinite, since any combination of two members of n is also […]
Two first year multipliers: their truth, beauty, and usefulness
Alone again or, just me and the money multiplier, against the world of trendy sophisticates who have put aside such childish things. It brings out the reactionary contrarian in me. And the world needs more reactionary contrarians, to help provide negative feedback against the faddish bubble multiplier of popular theory. There are two multipliers we […]
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