Category Monetary policy
What does lower US GDP mean for Canadian monetary policy?
A thought-experiment. A rather real thought-experiment. Assume you are Governor of the Bank of Canada. Your job is set monetary policy to bring inflation to the 2% target in the "medium term". You are just about to conclude a meeting where you will decide what target for the overnight rate you will set at the […]
Taxes and the value of paper money
Does the value of an intrinsically worthless (paper) money depend on the government's power to tax? I am going to answer this question from a quantity-theory perspective. The short answer is "yes". But the full answer is different from some other theories that also answer "yes". Those of you who already understand the modern quantity […]
Can the buck “break the buck”?
Obviously not, in any literal sense. But this might be a metaphor worth exploring. Are central banks like money market mutual funds? What happens to the value of the US Dollar, or the Euro, if the risk of sovereign default causes the value of a central bank's assets to fall below the value of its […]
Do Keynesians believe their own models?
I ask this as a quasi-Keynesian myself. I'm not (merely) trying to score points. [Update 2. Paul Krugman weighs in. Like Brad DeLong, and Scott Sumner (in comments), he questions my assumption that the central bank can keep the interest rate fixed, without buying all the outstanding bonds.] Take the standard ISLM model straight off […]
Taylor Rules and the Bank of Canada’s Monetary Policy Report
This morning I've been in email conversations with several economists who do not understand, or disagree with, something in the Bank of Canada's latest Monetary Policy Report (pdf). Specifically, Technical Box 2. These include some very good macroeconomists. I think I do understand it. And I agree with the Bank of Canada. So I am […]
Why does stuff take so long to happen?
For example, the Eurozone crisis. A couple of decades back, I noticed that things often seemed to happen the way economists thought they would happen, but that they always seemed to take about ten times longer to happen than you would have thought they would. We go from one equilibrium to another equilibrium in a […]
The peanut theory of recessions
I've got three targets in this post: economists who say that recessions are caused by real wages being too high; economists who say that recessions are caused by real interest rates being too high; and economists who say that recessions can't be caused by an excess demand for money, because we can always go to […]
An upward-sloping IS curve
Brad DeLong's post on John Cochrane's upward-sloping IS curve triggered this post. But this is not about John Cochrane. It's about why tight monetary policy may cause real interest rates to fall, if monetary policy is expected to stay tight for long enough. The story of an upward-sloping IS curve I'm putting forward here isn't […]
Eurozone fallout preparations?
1. If/when the Eurozone collapses, how will that affect countries in the rest of the world, like Canada? 2. What, if anything, can those countries do about it?
The inverse function theorem and the monetary policy instrument
I'm not very good at math. So treat this post accordingly. [Ooops! As Kevin points out. I meant the *inverse* function theorem. I did say I was no good at math. I've edited it now. Can't find the strikeout function.]. The basic idea here seems rather obvious. But I don't remember anyone making this connection […]
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