Category Monetary policy
Walras’ Law vs Monetary Disequilibrium Theory
Walras' Law says that a general glut (excess supply) of newly-produced goods (and services) has to be matched by an excess demand for some other good. But it could be matched by an excess demand of anything that is not a newly-produced good. It could be an excess demand for money. Or it could be […]
Functional Finance vs the Long Run Government Budget Constraint
(I had been planning to write this post before Steven Landsburg started a whole blogosphere argument about what taxes are for. Honest!) Functional Finance says you only use taxes if you want to reduce Aggregate Demand to prevent inflation. The Long Run Government Budget Constraint says you use taxes to pay for past, present or […]
Reverse-engineering the MMT model
I'm trying to keep this as simple as possible, so it's accessible to second-year economics undergraduates. Many theoretical papers I read are full of impenetrable (to me) thickets of math. So I reverse-engineer the model. I try to figure out what the underlying model must be in order for the paper's conclusions to make sense. […]
A monetarist search model of keynesian unemployment
This post was inspired by Steve Williamson's post on Roger Farmer. Steve has a model(pdf) that he sees as capturing the essence of what Roger is saying. Leave aside the question of whether Steve's model is a good interpretation of Roger. I like Steve's model because it's clean and simple. But Steve's model is a […]
What are the policy implications of an under-valued Canadian dollar?
I wrote a post a few months ago on the curiously nonlinear relationship between the Canadian exchange rate and oil prices. Since then, the prices of oil and other commodities have continued to increase, and it is perhaps time to consider the policy implications of the kink at parity.
Do Keynesians understand their own models?
If we lived in a world of barter exchange, or in a world where people could use barter exchange at minimal cost, Keynesian macroeconomics would make no sense whatsoever. That is not, of course, a criticism of Keynesian macroeconomics. We do live in a world where people use monetary exchange, not barter. And people (usually) […]
The conflicting claims theory of inflation, and unemployment
The conflicting claims theory of inflation goes like this. Suppose we start in equilibrium with 10 people in an economy each earning 10% of total income. Then all of a sudden each decides he deserves 11% of total income, and raises his price accordingly. The total claims add up to 110% of total income. In […]
Divine Coincidence Failure. UK lessons for the Bank of Canada
According to "divine coincidence", the monetary policy that is best for stabilising inflation is also best for stabilising real output. Divine coincidence seems to be holding up fairly well in Canada. But the recent UK experience is a case where divine coincidence has failed. The Bank of Canada's inflation target is up for renewal this […]
Tatonnement: in Walras, PSST, and monetary disequilibrium
Walrasian general equilibrium theory models the economy as a system of demand and supply equations. The quantities of goods traded, and the prices at which they are traded, are the solution to that system of equations. Who solves those equations? A fictional Walrasian auctioneer, who calls out prices at random, asks people their demands and […]
Excess demands for apples, bonds, and money in a representative agent economy
1. Assume a representative agent model in which everyone has exactly the same supply and demand for apples. No apples get traded in equilibrium. A law which lowers the price of apples will create an excess demand for apples, but will have no effect on anything else. People will now want to buy apples, but […]
Worthwhile Canadian Initiative 
Recent Comments