Category Nick Rowe
Raising expectations of inflation vs raising expectations of NGDP growth
Brad DeLong says: "If you believe–as I do–that the overwhelming proportion of the effects of non-standard monetary policy at the zero nominal lower bound come from reducing short-term safe real interest rates by raising expectations of inflation,…" I believe something a bit different. Let me try to convince Brad to see it my way. Let […]
New Keynesian countercyclical fiscal policy isn’t what you probably think it is
If it weren't for the Zero Lower Bound on nominal interest rates, there would be no macroeconomic role for fiscal policy in New Keynesian models. Monetary policy alone could and therefore should be used to hit the macroeconomic target, because this leaves fiscal policy free to try to hit its many microeconomic targets as best […]
Words and wartime austerity
Words matter. You can't have an intelligent discussion about fiscal policy if you use loaded and misleading words to describe fiscal policy. Cancelling or postponing a government investment project might be a wise decision. Or it might be a foolish decision. But it is not "austerity". Implementing or preponing a government investment project might be […]
Did finance really matter?
If we used cows as money, we would probably teach our students courses on "Money and Milk Yields". If an outbreak of foot and mouth disease had caused a recession, macroeconomists would feel they needed to pay much more attention to veterinarians. Milk yields matter. Foot and mouth disease is a problem. But these are […]
Is Japan already dead?
No, I don't think it is. But I think "Is Japan already dead?" is a much better question to ask than "Will the increased interest rates from economic recovery kill Japan?" This is just a supplement to three posts: by me; by Noah Smith; and by Paul Krugman. (This also harks back to Livio's post […]
A theory of the price level is a theory of inflation, but not vice versa
Because of calculus. Suppose you start with a theory of the price level P(t). Differentiate that theory with respect to time and you get a theory of the inflation rate Pdot(t). If P(t) jumps at some time, which it might in some cases, inflation is infinite at those times, but that's interesting to know. Suppose […]
The usefulness of AS-AD, an example
Here is a model I saw recently. Except I am the one who has used the AS-AD framework to illustrate that model. The AD curve is drawn under the assumption that the central bank holds the nominal interest rate fixed. According to that model: If wages are sticky (so we are on the SRAS) a […]
On the percentage of Canada covered by water (totally off topic)
Sorry. This is about maths and stats, with a possible application to physical geography. Nothing to do with economics (well, it might have an application to business cycles, but I'm not ready to go there yet). Maybe the geographers have already figured this one out long ago (I couldn't find it on Google, but I […]
In defence of the AS-AD framework
I disagree with Peter Dorman (HT Mark Thoma). I have used the AS-AD framework many times in my blog posts (and I don't remember anyone ever snickering at me for doing so) because I find it useful. Paul Krugman offers a partial defence of AS-AD, with the following caveat: "So there is a place for […]
Monopolistic Competition vs the Plucking Model
I like macroeconomics with monopolistic competition rather than perfect competition. It helps me make sense of the world. (Most modern macro models assume monopolistic competition.) I like Milton Friedman's "Plucking Model". It seems to work well empirically. But the two seem to me to be in conflict. I can't consistently believe both.
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