Friday , December 6 2019
Home / Tag Archives: Nick Rowe

Tag Archives: Nick Rowe

Boiling Frogs – Slow Recoveries are Deep Recoveries, with Flatter Phillips Curves

Andy Harless' tweet (about the US economy) got me thinking. "There’s a frog-boiling aspect to this economy. The consistent lack of *rapid* improvement throughout the recovery is enabling us to reach levels of employment that might not otherwise have been attainable." It reminds me of my old post "Short Run 'Speed Limits' on recovery".  The basic idea is simple: actual inflation (relative to expected inflation) might depend not just on the level of employment (relative to some unknown...

Read More »

Hilbert’s Hotel and the National Debt when r < g

Hilbert's Hotel has infinitely many rooms. Even if every room is full, you can still make room for one more guest in room 1, by moving the guest currently in room 1 to room 2, moving the guest currently in room 2 to room 3, and so on forever. When the rate of interest r is less than the growth rate of GDP g ("r < g"), the national debt in an infinitely-lived economy is a bit like Hilbert's Hotel. The government prints some bonds, which it gives (as a freebie) to generation 1 (this is...

Read More »

On not “running out of ammo”: Monetary Policy as Farmland Price Policy

Imagine a central bank that pegs the price of farmland. It announces it will buy or sell unlimited amounts of farmland for $10,000 per hectare. So "one dollar" doesn't mean some number of ounces of gold; it means "one square meter of farmland". So the central bank owns farmland, which it rents out to farmers at market rents. It uses those rents to pay for paper and ink and economists' salaries, and gives the rest to the government which owns the central bank. Or it could have a crawling...

Read More »

Alpha Beta and the Libra Twist

Suppose I promise to be in the same place as you; but you make no promise to be in the same place as me. Then I am Beta follower and you are Alpha leader; because you go where you want to go and I must go to the same place to keep my promise. We get the same Alpha-Beta relationship with asymmetrical fixed exchange rates. If the US Fed decided (for some unknown reason) to peg the exchange rate of the US dollar to the Canadian dollar, but the Bank of Canada makes no such promise the other...

Read More »

Accounting Identities and the Implicit Theory of Inertia

Animals can be divided into Carnivores and Non-Carnivores: A = C + NC. Therefore, if we add some wolves to an island of sheep, the number of animals on that island will increase. It's easy to see why that argument might not be right. Wolves kill sheep. But if you didn't know that fact about wolves and sheep, the argument looks very appealing. But the equation A = C + NC tells us absolutely nothing about the world; it's an accounting identity that is true by definition. The only thing it...

Read More »

Fiat Bling

I visited a country where people wore paper money as jewelry. Richer people wore larger denomination notes, to signal how wealthy they were, and poorer people wore smaller denomination notes. Only the very poorest wore none at all. Then I learned the paper money wasn't used as money. They only produced one homogeneous good called "corn", so didn't need a medium of exchange. What I thought was money was in fact bling. Bling was issued by the central bank. It wasn't bling unless it had the...

Read More »

Robinson Crusoe and the Carbon Tax

Suppose I impose a carbon tax on Robinson Crusoe. But I give him a rebate exactly equal to the tax he pays. That tax plus rebate will have no effect on Robinson Crusoe's behaviour. He knows that if he cuts carbon by 1kg, and pays $1 less tax, his rebate also falls by $1, so his net tax (= tax minus rebate) stays the same. He has no incentive to cut carbon. Now imagine an archipelago of 100 identical islands, each with one identical Robinson Crusoe clone. And suppose I impose the same tax...

Read More »

Interest Rates and Money Growth; Two Types of Central Bank

I want to imagine two different types of central bank. The first type of central bank cuts nominal interest rates to increase money growth. The second type of central bank raises nominal interest rates to increase money growth. In both cases the increase in money growth causes Aggregate Demand to start growing, and eventually causes the inflation rate to rise. But the initial change in interest rates is the opposite in the two cases. Here is a simple example of the first type of central...

Read More »

Inflation and the Debt/GDP ratio

I'm trying to write a simple explainer. The best way to understand how inflation affects the debt/GDP ratio is to start out with a scenario where it doesn't. Then look at ways in which the real world is not like that scenario. Here's the "No Effect" scenario: The Bank of Canada suddenly decides to raise the inflation target by one percentage point (1ppt). Like from 2% to 3% (which is a 50% increase, which is why I'm being picky and saying 1 ppt instead). Assume that inflation immediately...

Read More »

“Are we at full employment yet?”

I vaguely remember having seen this movie before, the earlier British version. And it's a frustrating movie to watch, because nobody knows where full employment is, except maybe when we've driven past it and can see it in the rear-view mirror. And the question itself always gets confused between asking where full employment ought to be, according to someone's map of an ideal world, and where it actually is, given the world as it is, and what can be achieved with aggregate demand policy...

Read More »