Category Monetary policy
Do “Monetary Shocks” matter much?
The central bank is on the Gold Standard. The discovery of new gold increases the supply of gold, which causes an inflationary boom. People blame the inflationary boom on the gold discoveries. It can't have been a monetary shock, because the central bank wasn't doing anything different from what it always does. The central bank […]
Private vs Public Nominalism, and Interest on Money
Suppose I want to borrow money. So I issue a financial asset I call "NRUnits". You can buy NRUnits from me at $1 each. I consider two different policies to give people sufficient incentive to want to hold NRUnits: I promise to peg the exchange rate between NRUnits and the dollar, so they are always […]
Money stocks and flows
Because "stock-flow consistency" makes me think of money. [Here's Simon Wren-Lewis' and Jo Michell's good posts, but I've got a one-track mind.] 1. If you want to increase the stock of land in your portfolio, there's only one way to do it. You must increase the flow of land into your portfolio, by buying more […]
Raising the Inflation target vs Depreciating Paper money against Silicon money
A New Keynesian central bank considers two alternative policies to mitigate the risk of hitting the Zero Lower Bound: Raise the inflation target from 2% to 3%. Announce a crawling peg exchange rate between the paper money it issues (currency) and the silicon money it issues (reserves), so that paper depreciates at 1% per year […]
Alpha Banks, Beta Banks, and negative rates
This post is not as clear as it should be. Sorry. It's because my head is not very clear either. I wrote this to try to get my head clearer. An imaginary country uses 7 different media of exchange, issued by 6 different banks. There is one alpha bank, and 5 beta banks. The alpha […]
Finite Horizon models of inflation as the horizon goes to infinity
You have an infinite horizon model of inflation. Your model tells you what happens to the time-path of the price level P(t) if the central bank changes monetary policy. Please do something: Convert your infinite horizon model into a finite horizon model. Suppose the price level at time T, when the world ends, is pinned […]
Some Simple Basic Money, for Finance People
Finance people are good people. Economics needs finance people. Some of my best friends are finance people. But (you heard that "but" coming), finance people (though there are of course honourable exceptions) just don't seem to get money. I can hear the reply now: "Yeah, and money people don't get finance either!". And I think […]
Central Bank Coordination as BS; Targets vs Instruments.
Imagine you are at an international policy conference. Someone says "Central Banks need to coordinate their monetary policies better". You nod your head wisely in agreement, along with everyone else. Because you know that what one central bank does affects not just its own economy but the economies of other central banks, so there are […]
Wage Norm Function vs Stock Price Belief Function
Roger Farmer always has done interesting and different stuff. We need economists like that. But it's risky of course. What I'm trying to do here is articulate something that makes me uneasy about his recent line of macro theorising. Like his simple model here with Konstantin Platanov (pdf). Consider a simple model with three goods: […]
The Law of Reflux vs Helicopter Money
Let me start out with an extreme (and very silly) assumption, just so I can explain something simply. Assume that the demand for currency does not depend on the price level, nor on real income, nor on interest rates, nor on anything. It's just fixed. Every individual wants to hold exactly $100 in currency, no […]
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