Category Nick Rowe
Excess supply and monopolistic competition, once again
Why do firms so often seem to produce too much, or price too high, and have to sell off the excess at a reduced price? You are a baker. You get up early and bake a batch of fresh bread. You set the price for the day. You aren't sure how much bread will be […]
Bygones are not bygones
As always, Steve Randy Waldman has produced a post (and a follow-up) based on some deep and original thought, that provokes more thought. This is the thought it provoked in me. The issue is not technocrats vs moralists. The issue is consequentialist morality vs non-consequentialist morality. In economics, bygones are forever bygones. But bygones are […]
Bad Irish banks and the Tragedy of the Commons
This analogy can't be original. But I don't remember hearing it before (though that doesn't mean much). I was reading Morgan Kelly (H/T Tyler Cowen) on Irish banks. And I was also thinking about my next lecture in ECON1000, on common resources. Then it struck me. They are the same. Banks are a common pool […]
Excess supply under monopolistic competition
Like Peter Dorman, I used to suffer terribly from cognitive dissonance. The theory of perfect competition says that, in equilibrium, firms will be selling exactly the amount of the good they want to sell. But my lying eyes kept telling me that most firms, most of the time, really wanted to sell more than they […]
Daylight Savings Time and the non-neutrality of money
I've heard stories about people who set their watches 10 minutes fast, so they won't be late for meetings. It's hard to understand how it could work. Do they forget they set their watches 10 minutes fast? Because if they remember, they should be able to figure out they've got an extra 10 minutes, so […]
Don’t forget Tobin’s q, Mr Bernanke!
It bugs me when people forget Tobin’s q. It’s not as though James Tobin was some sort of wild-eyed fringe monetarist. He was a very mainstream Keynesian economist. Ben Bernanke missed an opportunity to invoke the effect of stock prices on Tobin’s q and hence on investment as part of his explanation of why loosening […]
What (I think) Paul Krugman was saying
Paul Krugman is a very good communicator. I try to emulate him. But I think he blew it on this post. Everybody has an off-day. No big deal. And it wasn't a simple thing to talk about anyway. This is what I think he was saying. This is my attempt to say it more clearly.
Why isn’t the multiplier infinite?
Assume the worst case scenario. Your economy is stuck in a permanent liquidity trap. It will stay there forever, unless you do something. Do you have to do something big, measured in the trillions of dollars? Suppose you do something, something very small, that has a direct effect of increasing Aggregate Demand by $1 per […]
Confessions of a central planner
"So Nick, how come a free-market economist like you is acting like a central planner?" I heard that a lot when I was an associate dean. Sometimes it was said to tease me. Sometimes out of genuine annoyance. I had my reply ready. "There are three ways to allocate resources. The market is best; soviet […]
A self-contradictory communications strategy
Does loosening monetary policy mean lower or higher nominal interest rates? An article in today's Financial Times (H/T Brad DeLong) is a good illustration of the problems that arise when central banks frame monetary policy as a (conditional) time-path for nominal interest rates.
Worthwhile Canadian Initiative 
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