Friday , April 28 2017
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Nick Rowe

Statistics Canada’s historical housing cost data is wrong

In the early 1960s, Canadian economic historian Marvin McInnis started digging through the Dominion Bureau of Statistics archives, looking for city-level information on rental prices. While there, he discovered something strange and disturbing:  A prominent theme of my career has been to reveal anomalies in what has been put forward as evidence. One instance is known only to me. In 1961 I was doing research for my doctoral thesis at what was then called the...

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Milk is mind-bogglingly cheap.

The Canadian Cook Book was first published in 1923. My copy is the twentieth edition, published in 1949. It dates from the heyday of home economics, a time when scientific principles were being applied to domestic life. Recipes are mixed in with nutritional information, guidance on the finer points of etiquette, and what we could call today "financial literacy". Below the fold I have reproduced a recommended food budget for the 20th century homemaker: Noteworthy in the Canadian...

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Should professors tell students exactly what they expect?

Imagine, for a moment, that students acquire valuable human capital during their time at university. Imagine that the grades on a student's transcript reflect his or her level of human capital. Imagine that, every term, a professor uses examinations, term papers, and other assignments, to measure how much human capital each student has acquired over the course of a term. Conventional wisdom suggests that the best way to go about that assessment is to have clear expectations. See,...

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A Very Brief History of Federal Cash Transfers: Canada 1867 to 2017

This is a post in celebration of Canada’s 150th and similar in time span to my previous one on housing supply and dwelling starts. Canada is a federation and a key feature of its operation is a system of intergovernmental transfers between its fiscal tiers. Indeed, transfers and regional equity are enshrined in Section 36 of the 1982 Constitution Act and Section 36(2) reads: “Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that...

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High Wages encourage Innovation?

High wages increase the benefits of an innovation that increases labour productivity. The higher the wage, the bigger the benefits of saving an hour of labour to produce the same quantity of goods. But if that innovation itself requires labour to think up the new idea, test it, and implement it, then high wages increase the costs of innovation too. If benefits and costs increase by the same percentage, high wages will have zero effect on the number of innovations that pass the expected...

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L’affaire Potter

You are all, I think, familiar with the details of L'Affaire Potter, so I need not enumerate them here. If you aren't already familiar with this story, you probably don't care what I have to say about it, so you can skip the rest of this post. But as a Quebec-based academic with a weekly column in a national newspaper, I feel obliged to say something. I suppose I should start where everyone else does, with their connection to Andrew Potter. I've never met Andrew, but I'd...

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Old and New Keynesian Multipliers: Cross-Section and Time-Series

Suppose you had an economy where half the agents are "Hand-To-Mouth" and have a Marginal Propensity to Consume of one (Ct=Yt), and the other half are "Autonomous" and have a Marginal Propensity to Consume of zero (Ct=At where At is exogenous with respect to their current income). If the two types of agents initially have the same income, the Marginal Propensity to Consume for the economy as a whole would be 0.5 and so the Old Keynesian Multiplier would be 2. For...

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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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