Category Nick Rowe
Unobtainium and Walras’ Law
Suppose people want to spend 30% of their income on unobtainium. But the supply is zero, because unobtainium is unobtainable. So there's an excess demand for unobtanium equal to 30% of GDP. What does that imply, all you students of economics?
Random Sales, and the elasticity of supply for the option of doing nothing
This post is not about Boxing Day sales. It's about those seemingly random sales, where a good is heavily discounted for no obvious reason. A couple of years ago I went to Canadian Tire planning to buy a $200 socket set. And was surprised to find the one I wanted on special that day at […]
Milton Friedman’s Thermostat
If a house has a good thermostat, we should observe a strong negative correlation between the amount of oil burned in the furnace (M), and the outside temperature (V). But we should observe no correlation between the amount of oil burned in the furnace (M) and the inside temperature (P). And we should observe no […]
Pictures of Ireland?
In countries like Ireland, there is currently an abnormally large Gap between nominal interest rates and the expected growth rate of nominal GDP. That Gap creates a nasty positive feedback loop, through two channels: The Risk Channel. It's hard to pay down debt when the debt is compounding a lot faster than the growth in […]
Expectational Wicksell
I'm optimistic about US recovery. If I'm reading the signs right, the market is also optimistic about US recovery. But that's not what makes me optimistic. Again, if I'm reading the signs right, the market is more optimistic about US recovery than the Fed is. And the market believes it is more optimistic about US […]
Money, Barter, and Recalculation. A response to Arnold Kling.
Arnold Kling has a good "rant against monetarism", triggered by my saying "My position is that a general glut can *only* be caused by an excess demand for the medium of exchange." Arnold's response: "Most economists believe this, or something like it. I used to believe it, or something like it. I think that it […]
If cows were money (a response to Brad DeLong)
If cows were money, an increased demand for milk would cause a recession. People would stop spending their cows to buy goods and services, because if you spend your cows you don't have as much milk. Was the recession caused by an excess demand for milk, or an excess demand for money?
Forecast the target, not the instrument
Should the Bank of Canada announce what it expects the future overnight rate to be? There are two good articles in the Financial Post: Pierre Siklos argues "yes"; Andrew Spence argues "no". There's more by both authors in this C.D. Howe backgrounder (pdf). I'm against it. I'm going to try to explain why I believe […]
Why blogging is hard
Imagine the following question on a PhD comprehensive exam: "Using a macroeconomic model with monopolistically competitive firms, explain how an increase in the expected future price level will cause an increase in the current price level. Also explain whether there is an effect on real output.
Sovereign insolvency and illiquidity
If a country has a debt/GDP ratio of 100%, and is paying 9% interest, and nominal GDP is not rising, then it's got a solvency problem. It needs to run a budget surplus of 9% of GDP just to stop the debt/GDP ratio rising further. And that is very hard to do. But why would […]
Worthwhile Canadian Initiative 
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