Saturday , March 25 2017
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Nick Rowe

Real Interest on Reserves

A central bank issues currency and wants to target the price of apples in terms of that currency. So it opens an apple window, and posts a sign promising to buy or sell unlimited quantities of apples at $1 each. Done. Arbitrage ensures that the market price of apples in the economy is always $1 each, plus or minus transportation costs to or from the central bank's apple window. If the central bank wanted to target 2% apple price inflation, it could simply change the price on the sign...

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We Are Adding Less to Housing Supply

Housing prices particularly in places like Toronto and Vancouver are still a big issue and what is driving them is the subject of debate. There is Josh Gordon’s recent policy paper, which places the main emphasis on demand side factors and there is the recent story raising alarm on Toronto’s “housing bubble”. There are of course demand and supply side factors and the supply of new housing coming onto the market is a factor. So today’s post is going to do two things: first, add to the debate...

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Federal Budgetary Comparisons: Canada and the United States

It is federal government budget season in both Canada and the United States and I thought it might be useful to provide a few visual comparisons on federal government finance for the two countries. While the expenditure responsibilities and composition of the two federal governments as well as the relationships and responsibilities with lower tier governments differ – in particular, the US federal government spends a larger direct share of its spending on health via Medicare and Medicaid and...

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Econoblogging – still a Worthwhile Canadian Initiative?

This Friday I will be joining colleagues in international affairs, journalism, public policy and political science to talk about "Academics in the Media Landscape: The Role of Scholar-Columnist-Bloggers". The panel is part of Carleton's Visions for Canada, 2042 conference, which explores "the ways innovative collaboration among researchers and the community may be the most effective response to Canada’s future challenges." As part of that exploration, us...

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Long Run Growth and the end of The End of (Monetary Policy) History

Suppose everyone believes that we have reached The End of History, as far as monetary policy is concerned. The new inflation-targeting regime adopted by central banks has finally solved the age-old problem of the business cycle. There will be no more booms and busts. Maybe not yet solved perfectly, but the broad outlines of the solution are already in place, and all that remains is the boring technical work of bringing central banks' implementation of that policy closer and closer to...

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Internal migration flows in Canada

Discussions about demographics are typically focused on trends in fertility/morbidity and immigration/emigration, and these are what matter at the national level. But at the local level, trends on internal migration are also important. Statistics Canada has been publishing data on inter-provincial migration for years, but there's only so much you can get out of them. Migration trends within large provinces such as Ontario and Quebec may be more important for local service providers than...

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Economists making spectacularly bad forecasts, 1961 edition.

Back in the 1960s, the Ontario government's Department of Economics dutifully cranked out annual population forecasts. What is remarkable about these forecasts is how far wrong they were. The economists completely failed to predict the demographic changes that were about to hit Ontario. Here are the 1961 projections side by side with the actual 1976 population numbers for Ontario, downloaded from Statistics Canada's CANSIM table 051-0001. (An image taken from the Ontario...

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A forgotten cost of the gold standard.

While waiting for the kettle to boil in the Economics department lounge, I searched for something - anything - to read. Then I spotted the 1961 Ontario Economic Survey on the departmental bookshelf. Opening the old volume at random, I hit gold: A problem peculiar to gold mining is that the price of gold has remained unchanged since 1933-34 when it was set at U.S. $35.00 per ounce. However, in the past 27 years, the costs of production have risen considerably, while no compensation...

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Supply Contraints and Ontario Housing Prices

A key feature of housing markets in Canada over the last decade is the sustained increase in prices particularly in larger urban centers such as Vancouver and Toronto. Data from Canada Mortgage and Housing (CMHC) on average MLS housing prices for Ontario as a whole shows that between 1990 and 2015 the increase was from $171,979 to $465,441 – a rise of 171 percent. In Toronto, the average MLS housing price was $254,890 in 1990 and $622,046 in 2015 and is expected to range from $$694,000 to...

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Apple Prices and Core Inflation

An economy produces two goods: apples and haircuts. The production function for apples shifts up or down every year at random, depending on the weather. The production function for haircuts never shifts. The weather causes relative prices to change. When there is good weather, and the apple harvest is large, the price of haircuts in terms of apples rises (the price of apples in terms of haircuts falls). When there is bad weather, and the apple harvest is small, the price of haircuts in terms...

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