Category Nick Rowe
US road trip!
This will be my last post for a couple of weeks. I'm off on a US road trip! My last big US road trip was Summer 1976. Berkeley to New York, by a very circuitous route. This one will be shorter, down the Atlantic coast, across to the Gulf of Mexico and back up along […]
Why failed bond auctions are good news
Suppose an increased supply of government bonds to finance deficit spending were met with an increased demand for government bonds from the private sector, so that interest rates stayed the same, and the bond issue were fully subscribed. That is exactly what would happen for a bond-financed tax cut under full Ricardian Equivalence, for example. […]
“Failed” government bond sales?
The UK government "failed" to sell all the bonds it wanted to sell to finance its deficit spending. The story is here. And here. There are many aspects of this story I find puzzling.
Two questions; no answers.
Are we seeing the first signs of recovery, or just a temporary bear-market rally? What caused it? Fiscal policy? Monetary Policy? Financial policy? Or did it just happen by itself? As I said, I don't have the answers, but while the rest of the economics blogosphere seems to be concentrating on AIG bonuses and the […]
Liquidity and risk: liquidity as the value of an option to sell at the market price
Is this a risk crisis or a liquidity crisis? What's the difference? We can define "risk" and "liquidity" any way we like, but some definitions are more useful than others. A useful definition would explain why "risky" assets need high yields to make people willing to hold them, and why "illiquid" assets need high yields […]
Why does liquidity matter so much?
This question has been bugging me for the last few months. I see the financial crisis as largely a liquidity crisis. People only want to hold the most liquid assets, and shun the illiquid. So liquid assets have high prices and low yields; and illiquid assets have low prices and high yields. But if we […]
Economic Impact Assessments, and fiscal policy: the fallacy of decomposition
Some extra money from the last Federal budget went to fund new projects at universities. As part of its application for funds, each university must say how it plans to spend the money, and also do an "Economic Impact Assessment". I have been called in to help. I know little about EIA. I remember a […]
Is quantitative easing trying to raise or lower interest rates?
The Bank of England has switched to quantitative easing. It is buying long bonds (gilts). What would count as a signal of success? We could argue that falling yields would signal success, because it is trying to reduce long interest rates to stimulate investment. But we could equally argue that rising yields would signal success, […]
Temporary vs. permanent quantitative easing
A permanent increase in the money supply (or one that is expected to be permanent) will have a different, and bigger, effect today than a temporary increase in the money supply (or one that is expected to be temporary). To say the same thing a different way, an increase in the expected future money supply […]
Liquidity and aggregate demand
Money is perfectly liquid. Other assets are not as liquid as money, but some are more liquid than others. One of the main features of the financial crisis is that some assets became less liquid than they had previously been. I want to look at the channels through which a fall in the liquidity of […]
Worthwhile Canadian Initiative 
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