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Scott Sumner, who runs a very nice blog himself, has an interesting take on Nicks post; see: The Bank of Canada is Important Precisely Because it is not a Bank. Lets take another look at 2 of the 3 tracings from todays case (Figure-2). I might not be a huge fan of New Years Resolutions but I am a big fan of using this time of year to look back at the previous 12 months and take stock of the ups and downs, ready to re-focus and move forwards into the new year. In any case, let us take this deficient demand hypothesis seriously for the moment. The imagery is splendid; my favorite, of course, being the Wile E. Coyote moment (or the Minsky moment) as reflecting the shock that unexpectedly slips the rug out from underneath the financial system. Im not sure that economists can rely on answers like this to identify the type of aggregate shock that is afflicting the economy. As you can see, these monthly flows are huge. Neglecting things I should be doing, like writing my monthly newsletter. The first diagram plots the average monthly flow of workers between employment and unemployment (all data is from the U.S. The blue line plots the UE flow (the flow of workers who made a transition from unemployment to employment). The blue line denotes the UN flow (the flow of workers from unemployment to nonparticipation) and the red line denotes the NU flow (the flow of workers from nonparticipation to unemployment). The next diagram plots the transitions between unemployment and nonparticipation (not in the labor force). Then I want to ask how this hypothesis might be reconciled with the labor market data I present below. It seems to me that this sort of data appears to be more consistent with an increase in reallocative activities in the labor market, rather than deficient demand. How does depressed demand, leading to reduced job openings, also encourage more workers to look for work? If you look at Nordic countries, they all have much less progressive tax systems than the USA, but they collect a lot more in taxes (including in VAT). If we can have negative nominal rates and change all these legal and contractual zero-rate promises to allow it, then prices wont be sticky any more! You can hold the paper templates to the felt as you cut around them, or use an air erasable fabric marker to draw around the templates then cut along the ink lines. Can economics shed light on whether the Iraq War was a good policy decision? Either way, it seems obvious that the agency in control of the supply of base money (the object of redemption) is going to be in a position to implement monetary policy. Whether this is a good or bad thing is the subject of much debate of course (lets not get into that here). It is so easy - if respected bloggers write about you on their frequented blogs so they get a brilliant image for your company, website and brand. An insurance company, for example, takes deposits (premiums), purchases assets, and creates a set of state-contingent liabilities backed by these assets. This leads us to ask what the Fed is doing when it purchases (say) MBS or UST assets? In my view it is transforming (relatively) illiquid assets into a very liquid asset (Fed cash). Banks are in the business of transforming illiquid assets into liquid assets. Think about the original multisector real business cycle model of Long and Plosser (JPE 1983). A negative productivity shock to one sector in their model economy could lead to a decline in the production and employment in many sectors of the economy. But for many self-employed people and small business owners outside the big company - big government nexus, it actually worked ok. But maybe not. And if not, then I am curious to know what sort of stories people might tell to square their pet hypothesis with the data above. If you know how you want to appear and sound to your audience, then it will be easier to be consistent. And then I came across this comment on my post by Brad DeLong: Department of Huh?