Category Nick Rowe
On understanding and spinning your own New Keynesian model
If I were a different sort of person, I would now be accusing some macroeconomists of deliberately misrepresenting the policy implications of their models in order to further their own political agenda. But I am not that sort of person. I don't generally go for conspiracy theories. And I myself used to make the same […]
New Keynesian multipliers, and the expansionary effects of falling government spending
Microeconomic models usually have negative feedback. Take a simple demand and supply model. Suppose there is a shock that causes the demand for apples to increase by 100 apples. That creates an excess demand for apples that causes the price to rise, that causes the quantity demanded to fall. If the supply and demand curves […]
House prices “bubbled” because Turgot’s land beats Samuelson’s “money”
This post won't be as clear as I want it to be. I'm trying to get my head straight on something. Sorry. Why are real interest rates positive? Turgot's answer was "Well, suppose they weren't, and never would be. Then the price of land would be infinite, because the present value of the rents would […]
Naive vs rational expectations is a (partly) false dichotomy
[Update: short version. It is not stupid to use rules of thumb. Rules of thumb can be rational. It is stupid to use rules of thumb that don't work well in the world you live in; and never change those rules of thumb if the world changes. And in the olden days, before rational expectations, […]
What determines long run private debt/GDP ratios?
Are you concerned about high and rising private debt/GDP ratios? Then look at this World Bank data, and you will get a whole new perspective on the question. Would you feel less worried if Canada had the same ratio as Afghanistan? You will see massive cross-country differences in private debt/GDP ratios. The ratios range from […]
Pictures of adverse selection in an insurance market, with and without death spirals
This is a simple model, with diagrams, of adverse selection in an insurance market. It's mostly for teaching purposes. (Adverse selection is currently very topical in the US, but it's a perennial problem that applies to all forms of insurance markets, and many other markets too.) I don't know if these diagrams are in any […]
What will really old, stupid, and uneducated people do?
Typepad puts almost all my comments in spam. Me! Don't they know who I am? I can fish them out of the spam filter when it's my own post, but it means I have given up commenting on other people's posts, both here and on other blogs, if they use Typepad. Because my comments go […]
On “letting the market set interest rates”
Most people who say "interest rates should be set by the market and not by government-owned central banks" are confused. But not all who say that are confused. People who want the government to get out of the money business altogether, and de-nationalise money and central banking, are not confused. They might be right or […]
Asset prices and the retirement revolution
Sometimes I have to remind myself that the sort of short run macro I do doesn't really matter much. Things like the recent global recession don't make much difference in the big scheme of things. So I'm writing this as an antidote to my own narrow perspective. Or, maybe I'm just a typical boomer seeing […]
Depository vs non-depository financial institutions?
Today's dumb question(s) from teaching monetary and financial institutions: 1. What is the difference between a "depository" and a "non-depository" financial institution? 2. Why is that difference economically important?
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