Category Monetary policy
How much do expectations matter?
It is a cliche (among economists) to say that expectations matter. It is even more of a cliche to say that expectations matter for asset prices. But how much do expectations matter? I'm going to do a quick and dirty back of the envelope calculation to show that expectations matter a lot. And that the […]
Ulysses of the concrete steppes
Ulysses had to take concrete steps to influence his own future actions. He had himself tied to the mast. Unlike Ulysses, most of us don't have to take concrete steps to influence our own future actions. Instead we make promises.
The Big Secret: Banks are banks
I have a confession to make. During the financial crisis I secretly bailed out the Bank of Montreal. I was part of a vast conspiracy of millions of other Canadians doing the same thing. It's worse. My personal bailout program for the Bank of Montreal started long before the financial crisis. It started when I […]
Three arguments for NGDP targeting
This is in response to David Andolfatto's questions. Nominal GDP is just one of an infinite number of variables that monetary policy might target. The probability that NGDP is exactly the best target variable is infinitesimal. I nevertheless support NGDP targeting, because I think it is probably reasonably close to that unknown best target variable; […]
Wicksteed, stocks and flows
Flows are very very small relative to stocks. Each of us demands a flow of air to breathe, but since the flow demand is very very small relative to the stock supply of air, air is a free good. OK, that analogy is not perfect, so let me build a little "model".
Short vs long-run natural rates of interest
Just a quickie, because I'm (supposed to be) grading exams. I want to suggest a small change in Paul Krugman's two recent posts (here and here). One that would narrow the gap between his way of thinking and (say) Scott Sumner's. Desired saving and desired investment depend on a lot of things. One of the […]
Teaching inflation targeting with ISLM
In intermediate macroeconomics the ISLM model (and the Mundell-Fleming ISLMBP open economy version) is the main workhorse. But we also want to teach how the Bank of Canada (or whatever) targets inflation. This post is about how I use the ISLM to teach inflation targeting. It's a bit clunky, and I haven't got all the […]
From gold standard to CPI standard
Inflation targeting is a much better monetary policy than the gold standard. But that's not what this post is about. Is there any fundamental theoretical difference between how monetary policy worked under the gold standard and how monetary policy works today for a modern inflation-targeting central bank? That's what this post is about. If you […]
Asymmetric Redeemability question: if the Fed pegged to the loonie?
One of the things I was a little disappointed about in the recent money and banking controversy was that nobody (IIRC) picked up on my (it's not original to me) point about asymmetric redeemability. The Bank of Montreal promises to redeem its (demand deposit) dollars for Bank of Canada dollars, while the Bank of Canada […]
“Monetary policy is just one damn interest rate after another”
No it isn't. History might appear to be just one damn fact after another, but it's the job of social scientists to make sense of those facts, and try to explain the endogenous facts in terms of (relatively speaking) exogenous facts.
Worthwhile Canadian Initiative 
Recent Comments