Category Nick Rowe
Immaculate transfers and the monetary transmission mechanism
Assume that corn is identical across all countries, and is freely traded with zero transportation costs. We then know that "the law of one price" will hold for corn. The price of corn in Canada will be the same as the price of corn in the rest of the world. Why? Suppose it weren't. First […]
The best cure for “easy money” is easier monetary policy
Reading Bank of Canada Monetary Policy Reports doesn't normally annoy me, but reading this latest one did. Specifically, this bit: "Although the Bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that downside risks to inflation assume increasing importance. However, the Bank […]
Random thoughts on house prices
First random thought: a person who was very ignorant about future house prices would nevertheless be almost certain that real (inflation-adjusted) house prices will be lower than today at some time in the future. If we want a null hypothesis about house prices, I think the best null hypothesis would be that the log of […]
Forward guidance and the term structure in New Keynesian models
Take a standard New Keynesian macroeconomic model, where the central bank sets the one-period interest rate. Now let's hit it with an unexpected shock. For simplicity and concreteness, let the shock be a reduction in government spending that will last for n periods, after which government spending will return to normal. So government spending was […]
Opposition to two FTAs: Canada/US 1987 vs Canada/EU 2013
I don't understand this. In 1987 Canada negotiated a Free Trade Agreement with the US. In 2013 Canada negotiates a Free Trade Agreement with the EU. The US and the EU are both very big advanced economies. Wikipedia confirms my memory of 1987: "The debate in Canada over whether to implement the negotiated agreement was […]
Teaching tariffs vs taxes in a small open economy
I taught my first year students the effects of an import tariff in a small open economy. I used the standard diagram (from Mankiw, Kneebone and McKenzie). It looks like this:
Policy rules and borrowing degrees of freedom.
In the olden days, as Peter Dorman notes, macro models would contain variables like M (or r), G, and T (or t) for monetary and fiscal policy. Nowadays they usually contain a monetary policy rule, and sometimes a fiscal policy rule too. Like a Taylor Rule, for example. [Update: but see my old post on […]
Private debt, public debt, and continuity
Let me try it this way. Here's Brad DeLong: "So, by continuity, somewhere between policies of austerity that that produce deflationary depression due to an excess demand for safe assets and policies of fiscal license that produce inflationary boom caused by an excess supply of government debt, there must be a sweet spot: enough new […]
Twin debt equilibria, and waiting for the sunspot
Paul Krugman, responding to Simon Wren-Lewis, wants a model to better articulate Ken Rogoff's fears of debt and deficits (pdf). Fair enough request. I can't give Paul a fully worked-out formal model, but I think I can give him a sketch of what such a model would look like. (Update: If Paul likes, he could […]
If banks bought houses
One more for the Banking School. This is a thought-experiment to help us clarify our thinking about banks. If banks bought houses, instead of lending people the money for people to buy houses, what would be different? Not much. But we students of money and banking would avoid some common mistakes, like confusing the demand […]
Worthwhile Canadian Initiative 
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