Category Monetary policy
New Keynesians just assume full employment without even realising it
And anyone with even an ounce of Old Keynesian blood left in his veins, if they understood what the New Keynesians are doing, would be screaming blue murder that we are teaching this New Keynesian model to our students as the main macro model, and that central banks are using this model to set monetary […]
Old and New Keynesians and self-equilibration
As I have argued before: "Does the macroeconomy self-equilibrate?" is a stupid question, because the answer depends on the monetary policy being followed. Your answer also depends on your model of the economy. And that's what I want to look at here. "Compare and contrast Old Keynesian and New Keynesian views on whether the economy […]
Is NGDPLT a perfect guard dog? A challenge.
Can anyone think of a single historical example, in any country, at any time, where NGDPLT would have failed as a guard dog? Is targeting the level-path of Nominal GDP a perfect monetary policy? Almost certainly not. I would be really surprised if something as crude as NGDP turned out to be the very best […]
For David Andolfatto: why I switched from IT to NGDPLT
This post is for David, but it's mostly about me. I used to think that inflation targeting was probably roughly the best monetary policy to follow. Then, a couple of years ago, I began to think that NGDP level targeting was probably roughly the best monetary policy to follow. This post is about why I […]
How can you get an economy INTO a liquidity trap?
We spend a lot of time thinking about how to get out of a liquidity trap. Maybe we can think more clearly about that question if we instead ask the exact opposite question. But let's be a little more precise about our question: How can you get an economy into a liquidity trap in such […]
The two James Tobins
Not many people know this, but there were actually two James Tobins. The first James Tobin (pdf) said that there cannot be an excess supply of money, because if anyone did have an excess supply of money he would immediately run to the bank to get rid of it. The second James Tobin said that […]
Banks are special because the medium of exchange is special
If we used cows as media of exchange (if we bought and sold everything else in exchange for cows), would you say that dairy farming is a special industry that is macroeconomically important? I would. Because if we used cows as media of exchange, then what happened on dairy farms would affect the supply of […]
What Steve Keen is maybe trying to say
Or maybe not. But either way I'm going to say it. There's a fine line somewhere between: just fixing obvious typos in what someone actually said; and totally changing what they actually said. Or maybe there is no line, and it's just a continuous slope. Anyway, I'm going to cross that fine line here, and […]
Is money exogenous or endogenous?
Most macroeconomists will (correctly) see this as a boring post (though with maybe a small bite in the last paragraph?). But some might find it controversial. I'm just trying to state the usual view clearly. Is the weather exogenous or endogenous? Meteorologists try to explain/predict the weather, so by definition the weather will be endogenous […]
New Keynesians really need the Pigou effect
Because otherwise their models won't work. And yet the canonical versions of their models, which don't even have money, cannot have a Pigou effect. And so New Keynesians are guilty of the Old Keynesian accusation of "just assuming full employment". Here's why: In Old Keynesian models, if Aggregate Demand is too low, a cut in […]
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