Category Monetary policy
Raising expectations of inflation vs raising expectations of NGDP growth
Brad DeLong says: "If you believe–as I do–that the overwhelming proportion of the effects of non-standard monetary policy at the zero nominal lower bound come from reducing short-term safe real interest rates by raising expectations of inflation,…" I believe something a bit different. Let me try to convince Brad to see it my way. Let […]
Did finance really matter?
If we used cows as money, we would probably teach our students courses on "Money and Milk Yields". If an outbreak of foot and mouth disease had caused a recession, macroeconomists would feel they needed to pay much more attention to veterinarians. Milk yields matter. Foot and mouth disease is a problem. But these are […]
Is Japan already dead?
No, I don't think it is. But I think "Is Japan already dead?" is a much better question to ask than "Will the increased interest rates from economic recovery kill Japan?" This is just a supplement to three posts: by me; by Noah Smith; and by Paul Krugman. (This also harks back to Livio's post […]
A theory of the price level is a theory of inflation, but not vice versa
Because of calculus. Suppose you start with a theory of the price level P(t). Differentiate that theory with respect to time and you get a theory of the inflation rate Pdot(t). If P(t) jumps at some time, which it might in some cases, inflation is infinite at those times, but that's interesting to know. Suppose […]
The usefulness of AS-AD, an example
Here is a model I saw recently. Except I am the one who has used the AS-AD framework to illustrate that model. The AD curve is drawn under the assumption that the central bank holds the nominal interest rate fixed. According to that model: If wages are sticky (so we are on the SRAS) a […]
In defence of the AS-AD framework
I disagree with Peter Dorman (HT Mark Thoma). I have used the AS-AD framework many times in my blog posts (and I don't remember anyone ever snickering at me for doing so) because I find it useful. Paul Krugman offers a partial defence of AS-AD, with the following caveat: "So there is a place for […]
How can we spot a boom?
Suppose I had perfect knowledge about the economy. So I knew exactly what the right monetary policy would be to keep the economy growing along some sustainable path. And I knew exactly what that sustainable path would look like. I would then be able to tell the difference between: 1. Monetary policy is too loose, […]
Monetary policy is not interest rate policy – Japanese version
Suppose I announced I would be buying an asset, both now and in future. And suppose people believed my announcement. It would be paradoxical if my announcement caused the price of that asset to fall. It would be even more paradoxical if I had said I was buying the asset because I was trying to […]
The Challenges of Mark Carney’s European “Mission Civilisatrice”
In his farewell address to Canada before assuming the reins of the Bank of England, Mark Carney argues that Canada works because of the strength of the Canadian federation when it comes to its institutional framework and its four critical advantages of responsible fiscal policy, sound monetary policy, a single and resilient financial system and […]
If you don’t like low interest rates, you want the Bank of Canada to loosen monetary policy now
Two weeks ago I wrote a post "Monetary stimulus vs financial stability is a false trade-off". My opening lines in that post were: "There's an idea floating around out there that I fear may be influential. And that idea is horribly wrong. Which makes it dangerous. And I want to try to kill it." Today, […]
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