Category The 2008-9 recession
An alternative universe with gold price control
Imagine you are a monetary economist, working in a central bank, and you wake up one morning and find yourself in an alternative universe. You don't realise it's an alternative universe at first, because everything looks the same. But when you get into work and go to the meeting of the monetary policy committee, you […]
Interest rate control: maybe theory was right after all?
There used to be a debate over interest rate control vs. base control of monetary policy. We always knew (at least some of us always knew) that interest rate control couldn't work in theory, but it seemed to work in practice, so eventually even the die-hard defenders of base control quietened down, or were ignored, […]
Fiscal policy after the recession
Eventually, the recession will be over, and we will have to deal with the question of what should be done to recover from the recession-induced deficit. Ideally, the answer should be "Nothing": as the economy recovers, the deficit would go back to zero as tax revenues went back up and recession-induced expenditures went back down. […]
Say’s Law, Walras’ Law, and monetary policy
"Deficiencies of aggregate demand are always and everywhere a monetary phenomenon". There's an excess supply of newly-produced goods, and an excess demand for money. But what exactly does an excess demand for money mean? And what does it mean for the effectiveness of monetary policy?
Does fiscal stimulus make sense in a supply-shock recession?
David Andolfatto is somewhat concerned at the lack of thought that's been put into justifying a Canadian fiscal stimulus program. This is a theme that both Nick and I have touched on over the past few months, and the analysis is complicated by the fact that too many commentators make the assumption that Canada and […]
Is a US recovery a necessary condition for a Canadian recovery?
If you squint and hold your head at just the right angle, it is possible to persuade yourself that the US economy has reached at least a point of inflection: the most recent news about housing, auto sales and initial unemployment claims are less bad than what we've become used to seeing. But even if […]
Why failed bond auctions are good news
Suppose an increased supply of government bonds to finance deficit spending were met with an increased demand for government bonds from the private sector, so that interest rates stayed the same, and the bond issue were fully subscribed. That is exactly what would happen for a bond-financed tax cut under full Ricardian Equivalence, for example. […]
“Failed” government bond sales?
The UK government "failed" to sell all the bonds it wanted to sell to finance its deficit spending. The story is here. And here. There are many aspects of this story I find puzzling.
Two questions; no answers.
Are we seeing the first signs of recovery, or just a temporary bear-market rally? What caused it? Fiscal policy? Monetary Policy? Financial policy? Or did it just happen by itself? As I said, I don't have the answers, but while the rest of the economics blogosphere seems to be concentrating on AIG bonuses and the […]
Liquidity and risk: liquidity as the value of an option to sell at the market price
Is this a risk crisis or a liquidity crisis? What's the difference? We can define "risk" and "liquidity" any way we like, but some definitions are more useful than others. A useful definition would explain why "risky" assets need high yields to make people willing to hold them, and why "illiquid" assets need high yields […]
Worthwhile Canadian Initiative 
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