Category Nick Rowe
Two Neo-Wicksellian indeterminacies
To misquote Milton Friedman: macroeconomics has only regressed one derivative since Wicksell. The old Wicksellian indeterminacy has long been known: the equilibrium price level is indeterminate if the central bank sets an interest rate. The neo-Wicksellian/New Keynesian model has two indeterminacies. I've been worrying about the indeterminacy of the level of output; John Cochrane has […]
Teaching comparative advantage: barter vs money (bleg)
When we teach comparative advantage in Intro Econ we assume barter exchange. We swap Canadian apples for US bananas. But the students, quite naturally, are thinking of monetary exchange. What happens if Canadian apples and bananas cost more dollars [to produce] than US apples and bananas? That's possible, isn't it? Wouldn't that mean [US prices […]
Interest rates and Aggregate Demand
What happened in 2008? Why didn't the cut in interest rates prevent Aggregate Demand from falling? Was it just that the cut in interest rates wasn't big enough? Or is the rate of interest the wrong thing to look at? Because it's only a relative price, and relative prices only matter for relative demand? Suppose […]
Teaching notes on banks and money
[This is aimed at intermediate-level students. It's "big picture" stuff, and doesn't go into all the institutional details. And it's already too long.] Banks are financial intermediaries that create money. Banks are special because money is special. If we used cows as money, then dairy farms would be special, because dairy farms would create money. […]
Bertrand, Cournot, and the Simple Money Game
I'm writing this post mostly to try to get my own head straight. Read at your own risk. Strategy space matters. The order of moves matters. What I call "the Simple Money Game" is a three-stage mixed Bertrand-Cournot general equilibrium game. Bertrand moves are made before Cournot moves. Each player is both a producer of […]
MOE vs MOA: the battle of the paintings
I used to think that whoever controlled production of the Medium of Account controlled the price level. Now I think that's wrong. Unless the Medium of Account is also the Medium of Exchange. In an economy with a single MOA, and with n goods, there are only n-1 prices. (And in an economy with a […]
Thoughts on teaching “The Time Value of Money”
Strangely, because I've always been a macro/money guy, and have been teaching economics for 30+ years, I'm currently teaching the intermediate-level "Monetary and Financial Institutions" (aka "Money and Banking") course for the first time ever. (20 years ago I did teach a crash course in Finance to Marxist-trained Cubans, which was fun, and forced me […]
New Keynesians just assume full employment without even realising it
And anyone with even an ounce of Old Keynesian blood left in his veins, if they understood what the New Keynesians are doing, would be screaming blue murder that we are teaching this New Keynesian model to our students as the main macro model, and that central banks are using this model to set monetary […]
Old and New Keynesians and self-equilibration
As I have argued before: "Does the macroeconomy self-equilibrate?" is a stupid question, because the answer depends on the monetary policy being followed. Your answer also depends on your model of the economy. And that's what I want to look at here. "Compare and contrast Old Keynesian and New Keynesian views on whether the economy […]
Is NGDPLT a perfect guard dog? A challenge.
Can anyone think of a single historical example, in any country, at any time, where NGDPLT would have failed as a guard dog? Is targeting the level-path of Nominal GDP a perfect monetary policy? Almost certainly not. I would be really surprised if something as crude as NGDP turned out to be the very best […]
Worthwhile Canadian Initiative 
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