Category Monetary policy
Fiscal vs monetary policy, globally
This does not make sense. Why are so many countries around the world using fiscal policy when they have not yet made full use of orthodox monetary policy? The US makes sense. The Fed has already lowered the policy rate to zero, so it has no more room for orthodox monetary easing, so it's adding […]
“Buy domestic” policies are individually irrational too
Most (all?) economists agree that in a global recession, when each country wants to boost demand for the goods it produces, policies which steer demand to domestically-produced goods are individually rational (provided other countries don't retaliate), but collectively irrational when all countries do the same. I think most economists are wrong. It's not just collectively […]
Canada and the Eurozone: a comparison
I keep an eye on various European economics blogs (especially VoxEu and Maverecon). We often compare Canada and the US. I want to compare Canada and the Eurozone, just for a change. I want to revisit the Optimal Currency Area question, in the light of the financial crisis. The Eurozone is like Canada would be, […]
One useful insight from Austrian business cycle theory
I am not an Austrian, but… Three decades ago (ouch!) I made a valiant effort to understand Austrian business cycle theory. I failed. I wanted to believe it, because I found the existing theories (Old Keynesian or New Classical) unsatisfactory. But I couldn't get it to make sense.
The changing game between monetary and fiscal authorities
Who's in charge of aggregate demand? Monetary policy affects aggregate demand; fiscal policy affects aggregate demand. How the monetary authority acts may depend on how it expects the fiscal authority to act, and vice versa. What happens depends on the rules of the game they are playing. The rules of the game have changed in […]
Loanable Funds and Liquidity Preference; DeLong vs. Fama
This is a (probably hopeless) attempt to clarify the debate between Brad DeLong and Eugene Fama over whether an increase in government spending, financed by borrowing, will increase aggregate demand. There's something important that's missing from the debate: the rate of interest; and money.
Exogenous policy, endogenous policy……and improving policy
On Saturday I posted my views on why it is difficult to get good estimates of the effects of fiscal and monetary policy. On Sunday Greg Mankiw responded to (less than civil) criticism from Nate Silver. Here is the very short version: Nate Silver criticised Greg Mankiw for looking at the effects of an exogenous […]
Why there’s so little good evidence that fiscal (or monetary) policy works
Will fiscal (or monetary) policy work to prevent a recession? This is perhaps the central question of macroeconomics. We ought to know the answer, and we ought to have overwhelmingly good evidence to support our answer. But we don't. It's still being debated. There's a reason we don't have good evidence.
Current Fiscal Policy vs. Future Monetary Policy: Price-level Path Targeting
Paul Krugman presents a simple formal model of a liquidity trap. He shows that monetary policy won't work, but fiscal policy can work, to bring the economy to full-employment. Actually, that's not right. What his model shows is that current monetary policy won't work (because the nominal interest rate is at zero); but future monetary […]
“The Bank of Canada should peg the TSE 300” – revisited
"The Bank of Canada should peg the TSE-300" is the title of a Carleton Economics Department working paper I wrote in 1992. (Sorry, but no web version available; this was in the olden days when all we had was paper, and when the TSX was the TSE.) Given the recent turmoil in financial markets, and […]
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