Category Nick Rowe
Teaching general principles of macro
In a couple of hours the Bank of Canada will do what it does eight times a year. It will set a temporary target for the overnight rate of interest. Will it raise it, lower it, or leave it the same? What will its decision depend on? How will its decision affect the Canadian economy? […]
John Cochrane on Monetary Policy with Interest on Reserves
Central banks are usually owned by governments, and transfer their seigniorage profits to those governments. This creates a link between monetary and fiscal policy. But the presence of that link says nothing about the direction of causation. John Cochrane (pdf) says that central banks' paying interest on reserves allows them to conduct monetary policy independently […]
100% reserves via interest on reserves
Start with a fractional reserve banking system, like Canada's for example. Canadian banks are not required by law to hold any reserves, and choose to hold very little. They hold a small amount of currency, plus a very small amount of deposits at the Bank of Canada. Those deposits pay interest, but that rate of […]
Countries as homes
I was up late last night for the results of the EU elections. In the UK, the UK Independence Party came first with 27.5% of the vote (Labour second with 25.5% and Conservatives third with 24%). In France, the Front National came first with 25%. Both UKIP and the FN want to withdraw from the […]
How long is the short run? The macroeconomics of “doing nothing” revisited
The answer we normally give, when teaching intro macro, is: "It depends on price stickiness; if prices are very flexible it will be short, and if prices are very sticky it will be long." A better answer would be: "It depends on monetary policy; if monetary policy is very good it will be short, and […]
Interest, capital, MRScc=(1+r)=1+(MPK/MRTci)+(dMRTci/dt)/MRTci
That's the equilibrium condition for the real rate of interest in a competitive economy. I will explain what it means a little later. This is intended as a simple "teaching" post, and because I have a strange feeling that the theory of interest and capital is becoming topical again in the blogosphere, and that a […]
The New Keynesian conspiracy
New Keynesians believe that Say's Law is false. But they want the central bank to try to make Say's Law look true. New Keynesians believe that real business cycle theory is false. But they want the central bank to try to make real buiness cycle theory look true. New Keynesians believe that the loanable funds […]
Money, barter, the clearing house, and balance sheet recessions
I think David Beckworth is onto something important here. What looks like a balance sheet recession can in fact be caused by an excess demand for money. The hairdresser cuts the hair of the manicurist, who does the nails of the masseuse, who massages the hairdresser. We have a Wicksellian triangle, with no double coincidence […]
Teaching Loanable Funds vs Liquidity Preference
This is primarily for teachers of intro macro. Maybe for teachers of intermediate macro too, as a way to interpret ISLM. We have two quite different theories of what determines the rate of interest: Loanable Funds says that the rate of interest is determined by desired saving and desired investment. Liquidity Preference says that the […]
Is The Big Problem r g?
Two different memes about secular stagnation seem to be circulating in the econoblogosphere recently. The first says that r < g, or will be in future, therefore the economy is dynamically inefficient, and we need government to fix this problem. The second says that r > g, or will be in future, therefore inequality is […]
Worthwhile Canadian Initiative 
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