Category Nick Rowe
The simple money supply multiplier model and simple keynesian multiplier model
These two first-year textbook models — the simple money supply multiplier model; and the simple keynesian income-expenditure multiplier model — are formally identical. Translated into math, or game theory, you can't tell the difference between them. They contain exactly the same important insight: that what is true for the individual bank/household is not true for […]
Creation myths and economic history
Economists have their "creation myths", like Carl Menger's theory of the origins of money. What is the relation between these creation myths and economic history? Was there ever a time at which people used barter, and then monetary exchange evolved in the way Menger said it did? Political philosophers also have their creation myths, like […]
Fallacies of composition and decomposition: the supply of money and reserves
Does the supply of reserves matter? It certainly matters in the simple textbook ECON 1000 model of the money multiplier. But is that model fatally flawed, especially in the context of zero required reserves, and where central banks target an interest rate, so the quantity of reserves is demand-determined? Some people do argue that the […]
Of horses and men
As a teenager I read Kurt Vonnegut's novel Player Piano. It's stuck in my economist's mind ever since. It describes life in the near-future when technology and machines have destroyed the demand for nearly all human labour, except for the labour of a small, highly-educated minority. The vast majority of the population would be unemployed, […]
Strategy space and monetary policy
Or, "Why central banks should stop talking about interest rates". Game theorists know that a change in the "strategy space" can change the equilibrium of a game. The classic example, now over a century old, is the difference between the Cournot-Nash equilibrium and the Bertrand-Nash equilibrium in oligopoly theory.
Infinite equilibrium asset prices?
Could there ever be conditions under which the equilibrium (real) prices for some assets are infinite? What would happen to an economy as it approached those conditions? Would those prices keep climbing to the skies heavens, then collapsing in waves of fear and panic? I'm trying to figure it out.
Is Barter Countercyclical?
The Wall Street Journal (H/T Peter Gordon) says that barter is countercyclical. Barter increases in recessions, like now, and decreases in booms. Can anyone confirm this? Because that fact (if it is a fact) is really important in understanding the nature of business cycles and recessions. Countercyclical barter is exactly what one would predict from […]
The supply and demand for (belief in) EMH
The extent to which the Efficient Market Hypothesis is true, and the extent to which EMH is believed to be true, are co-determined in simultaneous equilibrium by "supply" and "demand". Here's the picture:
Two perspectives on EMH: Biz Skool vs. Econ Dept
A theory is like a tool: whether it is right or wrong depends on what job you want to use it for. From the Econ Dept perspective, watching the players play, the Efficient Market Hypothesis makes a lot of sense. From the Biz Skool perspective, as one of the players playing, the EMH makes much […]
Don’t bubbles burst when pricked?
This is an inchoate post. That's not really an apology. Economists' ideas about bubbles aren't very clear. We can define a bubble theoretically, but we can't explain why they sometimes exist, sometimes don't exist, or why they sometimes start and stop existing. And we are not very good at identifying bubbles, even perhaps in hindsight. […]
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