Solving a RE Model a Simple Macroeconomy notes
Solving a RE Model: A Simple Macroeconomy
Adding in uncertainty complicates matters, but the extra insight
is worth the effort. A popular way of solving RE models is known
as the "method of undetermined
Case for Deflation notes
The Case for Deflation
Friedman's case for deflation: even zero inflation is probably too
high, since nominal interest rates will remain positive, implying
a positive tax on real balances.
Can get the same result by sim
ABC and Unemployment notes
ABC, II: Unemployment
Early criticism of ABC: "it assumes full employment."
full employment is not an assumption
its a conclusion.
If there is unemployment, it just shows that wage rates
Bank Runs and Alternatives to Banking notes
Bank Runs and Bank Insurance
Transactions cost: bank runs are harmless portfolio
reallocations. Bank insurance is just a subsidy to risky
investments. Bank insurance coupled with "safe asset"
Broader Measures of the Money Supply and Money Substitutes notes
Broader Measures of the Money Supply + Money Substitutes
Other - broader - measures of the money supply often receive
attention, e.g. M1, M2, M3, etc.
At the same time, there are ma
ABC Boom and Bust notes
What's Puzzling About Business Cycles?
Rothbard describes three puzzles that a business cycle theory
ought to solve:
Why is there a sudden general cluster of business errors?
Why do capital goods industries fluctuat
Costly Monitoring notes
Advanced Credit Market Imperfections, I: Costly Monitoring (from
Principal and agent want to write a contract, such that the agent
borrows from the principal, realizes a random return, and pays
something back. The b
Cash in Advance notes
Velocity, Money Demand, and More
Velocity is just the inverse of the percentage of your income
that you keep in the form of cash.
One interesting way to think about velocity: income-adjusted
If money deman
Circularity vs Coordination notes
Circularity, or Coordination?
Even if their were a circularity problem with price level
determination, you could still figure out your real money
demand. But as the above section makes clear, once you've got
Case for Zero Inflation notes
The Case for Zero Inflation
Reduces inflation tax, but does not eliminate (unless nominal
rates fall to 0 too).
Substantial reduction in menu costs for goods. (But note: with
increasing labor productivit