Category Nick Rowe
Never mind the flatness, feel the length (of the observed Phillips Curve)
Sorry. It suddenly came to me this morning: a simple (and now blindingly obvious) way to reconcile an apparent contradiction in my own thoughts. As a lot of people in different countries have noticed, the observed Phillips Curve now looks very flat. Certainly a lot flatter than it did in the past. And I've been […]
Monopoly/monopsony power and hungriness for sales/purchases
This is actually about the minimum wage debate. And I'm more asking you a question than giving you my answer. Bear with me for a minute. You are a seller. You sell a good for money. You have some degree of monopoly power over the good you sell. You face a downward-sloping demand curve, you […]
Equalising the twin markups in a monopolistically competitive macroeconomy
The first markup is the markup of Price over Marginal Cost, required for individual firms' profit-maximisation. This is related to the elasticity of an individual firm's demand curve. The formula is: P/MC = [1/(1-1/e)]. The second markup is the markup of Average Total Cost over Marginal Cost. Free entry and exit of firms requires a […]
High Wages encourage Innovation?
High wages increase the benefits of an innovation that increases labour productivity. The higher the wage, the bigger the benefits of saving an hour of labour to produce the same quantity of goods. But if that innovation itself requires labour to think up the new idea, test it, and implement it, then high wages increase […]
Old and New Keynesian Multipliers: Cross-Section and Time-Series
Suppose you had an economy where half the agents are "Hand-To-Mouth" and have a Marginal Propensity to Consume of one (Ct=Yt), and the other half are "Autonomous" and have a Marginal Propensity to Consume of zero (Ct=At where At is exogenous with respect to their current income). If the two types of agents initially have […]
Real Interest on Reserves
A central bank issues currency and wants to target the price of apples in terms of that currency. So it opens an apple window, and posts a sign promising to buy or sell unlimited quantities of apples at $1 each. Done. Arbitrage ensures that the market price of apples in the economy is always $1 […]
Long Run Growth and the end of The End of (Monetary Policy) History
Suppose everyone believes that we have reached The End of History, as far as monetary policy is concerned. The new inflation-targeting regime adopted by central banks has finally solved the age-old problem of the business cycle. There will be no more booms and busts. Maybe not yet solved perfectly, but the broad outlines of the […]
Apple Prices and Core Inflation
An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harvest is large, the price of haircuts in […]
Path-dependence of measuring real GDP?
I normally try to avoid index number theory. Don't trust me on this. It is well understood that real GDP is a very imperfect measure of welfare. We teach that in first year macro. That is not what this post is about. What I'm worried about is whether real GDP is an imperfect measure of […]
Variety and Growth
A closed economy produces only apples, using fixed amounts of labour and land. Suppose there is an exogenous increase in the number of varieties of apples produced. With a constant returns to scale technology, GDP stays the same. But if people have a taste for variety, or a variety of different tastes, people are better […]
Worthwhile Canadian Initiative 
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