Here is a simple way to think about the correlations between nominal interest rates and inflation rates. We need to distinguish between three "Fisher curves": the long run; the medium run; and the short run Fisher curve. We need to distinguish between: the actual inflation rate; the central bank's inflation target; and what people expect […]

I have been arguing with John Cochrane and Steve Williamson over whether central banks announcing higher nominal interest rates is inflationary or deflationary. The very fact that economists are arguing about that very basic question tells us something important about central banks' using nominal interest rates as a communications strategy: it sucks. This is a […]

This is in response to John Cochrane's good post. First off, you need to understand that Keynesians don't actually believe their own New Keynesian models. When they reason informally, they always assume inertia in actual or expected inflation. But the standard New Keynesian model, with the Calvo Phillips Curve, doesn't have inflation inertia in it. […]

Start with the actual unemployment rate in (say) Canada over (say) the last 20 years (the years of targeting 2% inflation). Calculate the average unemployment rate over that 20 years. Call it "Ua". Now imagine a policy counterfactual. Suppose that the Bank of Canada had done exactly what it did do, plus or minus a […]

What we have just witnessed is the economics equivalent of the Sokal hoax. It wasn't a hoax, just a mistake, but the effect was the same. We all make mistakes. What matters is that the rest of us didn't all spot that mistake immediately. Even those of us who did see that something was wrong […]

Steve Williamson's latest: "Next, conduct a thought experiment. What happens if there is an increase in the aggregate stock of liquid assets, say because the Treasury issues more debt? This will in general reduce liquidity premia on all assets, including money and short term debt. But we're in a liquidity trap, and the rates of […]