Category The 2008-9 recession
What if both Greenspan and his critics were right?
In 2003, Alan Greenspan argued that the Fed needed to set low interest rates to prevent falling into a liquidity trap and deflationary spiral. (H/T commenter Declan). In 2008, Greenspan's critics argue that those same low interest rates caused an asset bubble, which burst, causing the economy to fall into a liquidity trap and deflationary […]
Employment sticks to the script
Unfortunately, we're at the scary part. Here's what has happened to employment during the first three months of the recession, compared to previous recessions.
IS, LM, and two wedges: understanding the second wedge
A simple macroeconomic model of the current situation is the ISLM with two wedges. The first wedge between the IS and LM curves is the gap between nominal and real interest rates. The second wedge between the IS and LM curves is the gap between government and private interest rates. We add (or subtract) the […]
Stiglitz on inflation targeting: A Canadian perspective
I don't understand this. Davos Man's Depression: The so-called “efficient markets” model, which holds that prices fully and efficiently reflect all available information, also came in for a trashing. So did inflation targeting: the excessive focus on inflation had diverted attention from the more fundamental question of financial stability. Central bankers’ belief that controlling inflation […]
Fiscal vs monetary policy, globally
This does not make sense. Why are so many countries around the world using fiscal policy when they have not yet made full use of orthodox monetary policy? The US makes sense. The Fed has already lowered the policy rate to zero, so it has no more room for orthodox monetary easing, so it's adding […]
A tale of two Depressions
The Ottawa Citizen's Dan Gardner has a mission, one that is almost Quixotic in nature: solitary, noble, and doomed to failure. He has taken it upon himself to chastise lazy pundits who seek to augment their columns with injections of Ersatz GravitasTM (It's deep! It's cheap!) by comparing the present-day Canadian economy with the Great […]
Comparing recessions and recession projections
According to this story, there seems to be some disagreement about how the current recession will play out: The issue is Mr. Carney's prediction last month that the recession will begin to recede by the end of the year, followed by a sharp rebound of growth averaging 3.8 per cent in 2010. While Bay Street […]
Exchange rate expectations in a liquidity trap
Bottom line: Since we don't know much about how an economy can escape a deflationary spiral by itself, we don't know the counterfactual conditional, and so can't estimate the effect of a fiscal expansion on the future price level and the rational expectation of the future exchange rate under PPP. The assumption of static expectations […]
The political economy of protectionism
Update: Paul Krugman has a very good response to my earlier post. He is NOT endorsing protectionism: "First of all: my piece was NOT an endorsement of protectionism — it was an explanation that there is an economic case for it, but also that there is a strong political economy case (which I consider dominant) […]
Paul Krugman implicitly assumes fixed exchange rates
Update: Paul Krugman has a very good response. He is NOT endorsing protectionism: "First of all: my piece was NOT an endorsement of protectionism — it was an explanation that there is an economic case for it, but also that there is a strong political economy case (which I consider dominant) against acting on that […]
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