Category Monetary policy
The macroeconomics of doing nothing
Suppose there is an increase in desired saving, and the monetary and fiscal authorities do nothing. What happens? That's the most important practical question in macroeconomics over the last few years. And it's also a really stupid question. And understanding why it's a really stupid question, and changing the way that question is asked — […]
Headline and Core, again. And the ECB.
They are still at it! (Making totally irrelevant arguments about headline vs core.) How to kill this zombie? Here is a very simple model of inflation. Don't take it too literally. It's just for illustration. 1. H(t) = aH(t-1) + bC(t-1) – cR(t-1) + e(t) H(t) is headline inflation at time t; C(t) is core […]
The monetary transmission mechanism
The reason that New Keynesians don't like talking about the supply of money and velocity has nothing to do with problems in defining the supply of money, the instability of velocity, or the instability of the money supply multiplier. As I argued in my last two posts, similar criticisms would apply equally to the New […]
Y tu actual rate of interest tambien, tambien
Damn. This is getting too easy. It's like shooting sitting pheasants! Hoisted from comments: reason says , in response to my last post, "The problem is with 'M'. It isn't well defined and it isn't under the direct control of the central bank." [Update: My response, in a nutshell: "The problem is with 'r'. It […]
Y tu natural rate of interest tambien
In the olden days there was a debate between the Old Monetarists and the Old Keynesians. The Old Keynesians said that the Old Monetarists' MV=PY was useless, because (desired) velocity was not constant. Milton Friedman responded with what philosophers call the "Y tu mama tambien" argument. The Old Keynesian multiplier wasn't constant either.
No, Atlanta and St Louis Feds, you can’t test whether core is useful that way
This is frustrating me. People (e.g. the Atlanta Fed Macroblog, the St Louis Fed Economic Synopses (pdf)) still aren't getting it. What can I do to attract attention to my simple point? Think up some totally insulting inflammatory blog post title? Nope, that's not really me. I'm just going to try again. And use bold. […]
The New Keynesian confidence fairy multiplier
The graphs from the University of Michigan's Survey of Consumers (HT Mark Thoma) show something that isn't supposed to happen in New Keynesian macroeconomics. It's not that New Keynesian macroeconomics says it can't happen; it just assumes it doesn't happen. So if the empirical evidence says that it did just happen, we need to re-think […]
Subsidies on Interest Income to increase Aggregate Demand
File this one under "crazy ideas that might be worth thinking about, even if only to understand our own theories better".
Is core inflation an artefact?
Headline inflation (total CPI inflation) has been above core inflation since last June. That's for Canada, but it's roughly the same in most other countries too. Most central banks, and most economists, pay more attention to core inflation than total inflation as an indicator of underlying inflationary pressures. Core inflation has inertia, and so is […]
Money, interest, employment, and luck
Monetary disequilibrium theorists must face this question: "If this recession was caused by an excess demand for money, how come interest rates are so low? Doesn't an excess demand for money mean an excess supply of bonds and rise in interest rates?" [Warning: this post is long, rambling, and unclear. I ought to tear it […]
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