Category Monetary policy
“The supply of money is demand-determined”
Rant mode on. It made my flesh creep just to type that title. Some statements are right. Some statements are wrong. Some statements aren't even wrong. Some statements, like the one in my title, aren't even not even wrong; they are just gibberish.
Banking “mysticism” and the hot potato
Paul Krugman seems to have gotten into an argument with the MMT guys about commercial banks creating money. I'm just giving my own views on this question. I'm basically following Leland Yeager [update: and David Laidler]. Strangely, while I agree with the MMT guys on many points (banks do create money out of thin air) […]
Blue sky money three: boomerang money
This post meanders and doesn't really come to any clear conclusion. Read at your own risk. Imagine, just imagine, that every dollar I spent was attached to a very long rubber band; and sooner or later it would return to my wallet to buy something I wanted to sell. Or that every dollar I spent […]
Greece, barter, and the gap-cubed law of new exchange systems
In the past, I have argued for the theory that recessions are always and everywhere a monetary (medium of exchange) phenomenon. How to test that theory? Non-monetary exchange (barter) is usually very costly, so people use money instead. But in a recession, if my view of recessions is correct, the benefits of resorting to barter […]
International finance with no international trade
Sometimes I like to make assumptions I know are totally false. Not (or not always) for simplicity, but just to see what happens. It helps me understand the world better. For example, sometimes I like to assume a barter economy; it helps me understand monetary exchange better to see what would happen if we didn't […]
Teaching SRAS shocks
I hate teaching Short Run Aggregate Supply shocks. 1. It's easy to teach them wrong. 2. I don't understand them very well. 3. I don't think anyone understands them very well.
Inflation targeting, American put options, and the liability of central banks
My last post was about whether money was a liability of the issuer. Lee Kelly, in a comment, summed up my thoughts: "Base money isn't really a liability of the central bank, but good monetary policy usually involves pretending that it is, e.g. by instituting a nominal GDP or inflation target." The Bank of Canada […]
Is money a liability?
I waved a $20 note in front of my macro class this morning. I said: "Is this a liability of the Bank of Canada?". They all answered "Yes". That's what we teach them. We draw a balance sheet for the Bank of Canada. We put the government bonds it owns on the asset side, and […]
Do illiquidity and sticky prices go together? If so, why?
Some goods are easy to buy and sell quickly. They are liquid. Other goods are harder to buy and sell quickly. They are illiquid. Some goods' prices adjust quickly to changes in demand and supply. They have flexible prices. Other goods' prices adjust slowly to changes in demand and supply. They have sticky prices. 1. […]
Sticky prices vs sticky coordination; inflation vs NGDP targeting
Monetary policy matters (mainly) because of nominal rigidities. The simplest story of nominal rigidities is that (some) prices (or wages) are sticky. Firms want to change prices when a shock hits, but there is some cost that makes it hard for them to do so. The object of monetary policy should then be to target […]
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