Category Monetary policy
The State(s) Theory of Money: California and Canadian Tire
I learn via Mark Thoma that there is a distinct chance that California will allow taxes to be paid in the new scrip it issued when it ran out of funds. I have no idea whether this will happen, or whether the Federal government will stop it. Let me just assume that it does happen, […]
Rambling thoughts on Canadian house prices and global savings gluts
This isn't a very focused post. There are two sets of thoughts bubbling through my mind this morning. The first is about Canadian house prices; the second is about global savings gluts. But the two topics are very definitely related. There is a lot of anecdotal evidence of a pick-up in at least some Canadian […]
Asset price bubbles, monetary policy, and the Lucas Critique
"Tight money causes unemployment to rise, and loose money causes unemployment to fall. Therefore, if monetary policy had a 20% inflation target rather than a 2% inflation target, monetary policy would be looser, and unemployment would be lower". Wrong, and now obviously wrong. But 40 years ago most economists thought it was right. "Tight money […]
What monetary policy cannot do, and so cannot be blamed for having done
We have learned, after long and painful lessons, that there are some good things we wish that monetary policy could do that monetary policy in fact cannot do. But we don't seem to have learned the corollary to that lesson: by exactly the same argument, there are also some bad things that monetary policy gets […]
Greenspan and his critics, again — with a Canadian twist
His critics blame Alan Greenspan for setting interest rates too low, which caused the house-price bubble, which then burst and caused the financial crisis. As I argued back in February, the critics are typically confused between interest rates that are low, and interest rates that are low relative to the natural rate. The topic is […]
Monetary stability vs financial stability
I want to compare and contrast the pursuit of monetary stability with the pursuit of financial stability. I am talking mainly about Canada, though much of what I say applies to other countries as well.
Monetary and fiscal policy ought normally move together
We normally think of monetary and fiscal policy as alternative methods of stabilising fluctuations in aggregate demand. It is only in abnormal times, like the present, when central banks' interest rate instruments are at or near the zero lower bound, that we might want to use both monetary and fiscal policy together. Only if we […]
The CPI release: Ignore the headline, and look at the core
A recurring source of frustration for me is that when Statistics Canada publishes its monthly numbers on CPI inflation, the data that really matter don't appear in the press release* so I have to wait until its Cansim data base is updated before I can comment. One consequence of this omission is that first reactions […]
The changing shape of the yield curve
There's a story out to the effect that the Federal Reserve may follow the Bank of Canada's lead and announce that it will not increase interest rates for several months or so (subject to some escape hatch if inflation starts to be a problem): US fed may speak with Canadian accent: While policy makers have […]
In praise of MV=PY
I used to think that the Equation of Exchange, MV=PY, was just a different way of writing the Cambridge Equation, M=kPY, with V=1/k. And of the two I preferred the M=kPY formulation, because it looked more like a money supply=money demand condition, and reminded us that V=1/k must be interpreted as desired velocity, if MV=PY […]
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