Category Monetary policy
Eurozone: is this the big one?
I'm scared again. I haven't felt this scared for over a year. Things were starting to look better, in Canada in particular, but around the world more generally. Now Greek bond yields are shooting up. I was worried about the Eurozone in January 2009. And again in December. Maybe it was just my Euroskeptic "Anglo-Saxon" […]
It’s game on at the Bank of Canada
Bank of Canada maintains overnight rate target at 1/4 per cent; removes conditional commitment. Now what? The Bank of Canada tries to avoid surprises when it can, and increasing interest rates when it has made a commitment not to would constitute a surprise. So removing the commitment – which itself it not much of a […]
Because You Asked For It: Small Business Strategy and the Canadian Dollar
Reader westslope recently asked: BTW, does your company top brass pay attention to your MERT model and, perhaps, strategically plan and hedge accordingly? That’s an easy one for me to answer because I am charge of the finances for Nexreg (a small Canadian company that makes the majority of their sales in the U.S.). What […]
The supply and demand for bubbles (in pictures)
I have drawn a picture of the supply and demand for bubbles. I think this picture might make it easier to understand what I was saying in my previous post on the need for a bubble. If the natural rate of interest, in an economy without a bubble, is below the growth rate of the […]
A Lucas Critique of monetary policy as interest rates
"The statistical relation between inflation and unemployment will not be invariant to the monetary policy regime". Economists will recognise that statement as an example of the Lucas Critique. They know it has implications for any policy that uses inflation to target unemployment. "The statistical relation between interest rates and inflation will not be invariant to […]
Do we need a bubble?
There is something economists have known since 1958 that we don't talk about much, except in private, like in economics journals that nobody else reads. It's a bit too weird. There are two sorts of world. In a normal world, the equilibrium rate of interest is above the growth rate of the economy. In a […]
Why the LM curve is (usually) vertical, and the AD curve (usually) horizontal
Short version: because the Bank of Canada (or any inflation-targeting central bank) makes the LM curve vertical and the AD curve horizontal. Long version below the fold:
The Bank of Canada and the exchange rate: the facts have changed, and so has its views
You will remember that the dollar went from 0.86 USD to 0.97 between July and October of last year, and that the question of what to do about the appreciating CAD took up a lot of our attention in the fall. (Sadly, much of my attention was diverted to how badly the issue was covered […]
The Division of Labour between interest rate and exchange rate
Stephen's graphs show quite clearly that Canadian monetary policy must tighten before US monetary policy. I'm convinced. But what does monetary policy mean? In this context, I'm going to ignore other interpretations, and just focus on interest rates and exchange rates. What is the division of labour between increasing interest rates and appreciating exchange rates? […]
International reserves and involuntary borrowing
Borrowing is nearly always voluntary. Somebody might want to lend to me, but they can't force me to borrow from them if I don't want to. But there's an exception. A country that issues the reserve currency can be forced to borrow from other countries, if those other countries want to lend to it. This […]
Worthwhile Canadian Initiative 
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