Category Monetary policy
Hot potatoes and hot yams
Money (the medium of exchange) is an asset. But the demand for money is different from the demand for any other asset. Here is an (inadequate) parable that tries to explain why it is different.
A monetary policy target can only be defeated by a better monetary policy target
"Monetary policy can cause bad things to happen in financial markets, which can cause bad things to happen in the rest of the economy. Therefore NGDP targeting is wrong." I made up that quote. But if I had to summarise M.C.K.'s long article in two short sentences, that is how I would do it.
(Why) Is inflation finally falling?
This post is premature. It's too early to say for sure. And I don't have any real answers to explain this (possibly non-) event. I'm trying to fit together a number of things that have been puzzling me.
What is going on with the Bank of Canada’s balance sheet?
From zerohedge: Mark Carney Leaves Canada With 'Stealth QE' Rising At Fastest Pace Since 2009: As Mark Carney steps aside from his role at the Bank of Canada to undertake all manner of easy money in the UK, we thought a reflection on the 'stealth' QE that he has been engaged with, very much under […]
Two extreme fiscal/monetary worlds
I want to imagine two extreme worlds, at opposite ends of the spectrum of possibilities. In the first world (the "fiscal" world), all financial liabilities of the government are non-monetary liabilities, "bonds", that cannot be used as media of exchange. People use something else for money. Maybe gold, or maybe money issued by commercial banks. […]
Do sofas refute monetarism?
Start with a very monetarist model of the monetary system. Whatever that means to you. Now let's add sofas to the model. Suppose that every year1% (say) of the monetary base disappeared down the back of the sofa, never to be seen again. Would that refute monetarism?
What should a central bank do when producer and consumer prices diverge?
In this post, Nick looked at this graph and made the following comment: In a counterfactual world, where the Bank of Canada was supposed to be targeting the level path of NGDP to follow that 5% trend line, what would we say? We would say that monetary policy was a little too loose in the years […]
Did inflation targeting make inflation stickier?
I think my last post was very clear. Inflation targeting failed. I know this post won't be clear. But this post tries to answer the question that my last post begs to be answered. Why did inflation targeting fail? I used to think that if the Bank of Canada succeeded in keeping inflation on target, […]
The Bank of Canada’s success and failure
The Bank of Canada has been very successful in keeping inflation on target. Which is what the Bank of Canada was supposed to do. But keeping inflation on target has failed to prevent recessions caused by deficient aggregate demand. Which is what keeping inflation on target was supposed to do. The problem is not the […]
Are there “Peso Problem” recessions?
Suppose monetary policy never changed for 99 years. Suppose nothing ever changed for 99 years. Would it be possible for there to be a deficient Aggregate Demand recession for 99 years? Why wouldn't prices adjust? Wouldn't 99 years be long enough for prices to adjust?
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