Category Monetary policy
The Eurozone Tea Party and the Lender of Last Resort
The Tea Party is much more powerful in Europe than in the US. Read Ambrose Evans-Pritchard to see an example. It's just they don't call it the "Tea Party" in Europe. It doesn't seem to have a name over there, but that's what it is.
Recessions are always and everywhere a monetary phenomena
"Inflation is always and everywhere a monetary phenomenon" was Milton Friedman's slogan. It was revolutionary (or counter-revolutionary) when he said it in 1970, but it's now very widely accepted. After all, we make central banks responsible for keeping inflation on target. We do not make fiscal authorities responsible for targeting inflation (unless they happen to […]
I Dissent (FOMC Edition)
This post was written by Simon van Norden of HEC-Montréal. Last week’s FOMC decision to signal looser monetary policy seemed to boost US stocks, as it was designed to. But the decision was a tough one: three of the eleven voting members dissented, which is as high as dissent on that committee has gotten in […]
Does inflation mean the earnings yield on stocks is seriously understated relative to bonds?
That's a question, and not a rhetorical one. I can think of a reason why it would be understated. But I lack the practical knowledge of corporate accounting to know if my reasoning is correct in practice, or if there's some offsetting effect I'm ignoring, and if the effect I'm talking about is big enough […]
The more things change…
A cartoon by Low on the 1932 banking crisis (HT Luke Ashworth):
Robust and fragile models, and fragility in the limit
Assume prices are perfectly flexible. Assume full information rational expectations. Assume money is neutral, super-neutral, and super-duper-neutral, etc. The Fisher equation holds exactly. And, the central bank sets the nominal rate of interest. And the economy is always in equilibrium. The model predicts that if the central bank increases the nominal interest rate by 1%, […]
The macroeconomics of double pole dancing
The stupidest thing we do in macroeconomics is draw a downward-sloping IS curve. It's the stupidest thing we do, because we know it's stupid. (And I've done it hundreds of times.) And because we do this stupid thing, we associate tight money with high interest rates. Unless of course we are someone like Scott Sumner, […]
ZMP workers and output quotas
Imagine, just imagine, that the government put a quota on the total output of, say, cars. Because some rabid environmentalists told them to. The result would be a drop in employment of auto workers. Some of those workers, who had skills useful in other sectors, would be able to find jobs elsewhere. Others, who had […]
The monetary policy of last resort — currency reform.
The monetary policy of last resort is to get rid of the old money and start a new one. "Currency reform". I can just remember this policy being mooted in the 1970's. What happens if tightening monetary policy fails to break entrenched inflationary expectations and an ever-increasing inflationary spiral? It was the ace in the […]
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