Category Nick Rowe
Is debt too high? Debt, pensions, and houses
Debt to income levels are high by historical standards in Canada and the US. Here's a recent report (pdf) from TD Economics showing household debt/income ratios at around 150% in both countries. But is that "too high"? And is that evidence that some people, like the Flopsy Bunnies, are very improvident? I'm going to play […]
Canada, the Eurozone, and interest rates
This is something I know I don't understand. Compare the following two statements: A: "Some Eurozone countries have higher interest rates on their government bonds, reflecting higher perceived risk of default. This raises all interest rates in those countries, and so reduces aggregate demand in those countries." B: "Some Canadian provinces have higher interest rates […]
Currency wars and forced dissaving
The Fed is the loan placement officer for the world's central banks. The US government is the Fed's borrower of last resort. The forced loans can be called in at any time the lender wishes. People are different; that's why they trade. Sometimes that trade will take place between people who live in the same […]
The quick and dirty way of putting money into macro
This post is really about maths, dark ages, and understanding macro. There are two ways of putting monetary exchange into a macroeconomic model: the proper way; and the quick and dirty way. Keynesians generally use the quick and dirty way. That's OK. But there may be problems if people don't understand what you are doing. […]
Stocks and bonds, and capital and money
How will we know that "QE2" is working? Judging from rising stock and bond prices, some will conclude it's working already, even though we haven't seen it yet (which is no surprise, because expected future monetary policy matters as much or more than current monetary policy). But I'm waiting for stock and bond prices to […]
Was Milton Friedman right after all???
Milton Friedman said a lot of things that were very controversial 40 years ago, but are now part of the economics mainstream. The natural rate hypothesis, and the view that monetary policy should have prime responsibility for aggregate demand and inflation, are now part of the New Keynesian orthodoxy. This shows how much Milton Friedman […]
Should we teach supply and demand in French?
A simple post, mainly aimed at people like me who teach Intro Economics. For decades I've been puzzling over the problem of how best to explain to first year students exactly what "quantity demanded" and "quantity supplied" mean. Then it suddenly struck me: it must be so much easier in French! (Can anybody who teaches […]
The paradox of thrift vs the paradox of hoarding
Would a sudden fad for antique furniture cause a recession? If, like Paul Krugman, you believe in the paradox of thrift, and if you follow the remorseless logic of your mistaken model, you should answer "yes". I don't believe in the paradox of thrift, and would answer "no". There is no paradox of thrift. There […]
Why we should stop talking about inventories when teaching macro
Nothing earth-shattering here. This post is about teaching macroeconomics better. But there's just a chance it might help some of you understand macro a little bit better. Whenever we teach the Keynesian Cross (income expenditure) model, and the distinction between National Income Accounting identities and equilibrium conditions, we always talk about inventory accumulation. Planned vs. […]
Targeting the stickiest price.
Suppose the price of apples is sticky, but the price of everything else adjusts instantly to its equilibrium value. There is then an old, and strong, argument that monetary policy should target the price of apples. The economy performs best when all prices are at equilibrium. If the price of apples won't move (quickly) to […]
Worthwhile Canadian Initiative 
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