Category Nick Rowe
The over-investment and under-saving theory of the ZLB
This post is ironic. I have a really neat new theory of what causes countries to hit the Zero Lower Bound. It's got a beautifully counter-intuitive policy implication. The government needs to tax investment, or subsidise saving, to help the country escape the ZLB. What I need is a co-author to help me do some […]
The collective speed limit game
Neo-Fisherite fun. Plus concrete steppes fun. 1. Suppose you don't care what speed you drive. Anything between 0 and 200 is all the same to you. But the cops do care what speed you drive. They want you to drive at exactly the speed limit S*, neither faster nor slower. (They have a symmetric target.) […]
Black holes and Neo-Fisherites are a monetary phenomenon
Suppose you live in a Neo-Wicksellian economy, where the central bank sets a nominal rate of interest. Black holes are a theoretical possibility. Nominal demand for goods can spiral down to zero, if people expect it to. And white explosions are a theoretical possibility too. Nominal demand for goods can spiral up to infinity, if […]
Neo-Fisherites again: Schmitt-Grohe and Uribe
I was scared of reading Stephanie Schmitt-Grohe and Martin Uribe's paper (pdf). All I knew was that it was a technically demanding paper, and that it had the "Neo-Fisherite" result — if the central bank increased the rate of interest, inflation would rise. I have now read it. Sort of. I think I now understand […]
Neo-Fisherites and the Scandinavian Flick
Noah Smith wonders if "reality might topple a beloved economic theory". Well, if you look at Sweden, reality just confirmed that beloved economic theory. The Riksbank raised interest rates because it was scared that low interest rates would cause financial instability. Lars Svensson resigned in protest. Then inflation fell, and the Riksbank needed to cut […]
Reverse Regression and the Great Gatsby Curve
[Update: I'm getting an awful feeling this post may be totally wrong. Does (1/b)/[1+Var(V(i))/Var(Y(i))] = b if the Lamarck model is true? If so, my proposal won't work. Wish I could do math.] [Update2. Nope, I think it will work. But Majromax in comments has come up with a simpler way to do the same […]
Making two macroeconomic fallacies true
This will be a confusing post, because I'm writing it to try to get my head clear on something. And it's still not clear. There are no answers here: only questions, and strange thoughts. 1. Lots of people believe the Inflation Fallacy: "Inflation makes us worse off because a 1% rise in prices means we […]
Will somebody please think of the Data Generating Process!
Or: "Should Finance People be allowed out unaccompanied by a macroeconomist?". If the central bank is doing its job right, monetary policy ought to appear to be irrelevant. The Economist says (HT Mark Thoma) "Interest rates do not seem to affect investment as economists assume", and this means that monetary policy is irrelevant. (Let's just […]
Old-fashioned stability, and robustness
There are two different monetary policies. The green monetary policy gives you the green AD curve, and the red monetary policy gives you the red AD curve. Both monetary policies give you exactly the same equilibrium P* and Y*. (You can interpret P* as the price level, or as the inflation rate, as you wish.) […]
John Cochrane’s “Monetary Policy with Interest on Reserves”
I am going to give what I think is the intuition behind John Cochrane's paper (pdf), that is the subject of his recent post. (Or maybe what I'm doing is reverse-engineering his model's results.) The key result of his paper is the "Neo-Fisherian" finding that an increase in the rate of interest set by the […]
Worthwhile Canadian Initiative 
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