Primer: Understanding Covered Interest Rate Parity

Covered interest rate parity is the relationship that determines the fair value of forward currency levels. It is easily understood from the perspective of an international bond investor or issuer, and these entities ensure that it holds in practice.

U.S. Economy: This Was Not Supposed To Happen

Now that the situation in Greece has calmed down somewhat, we can turn our attention back to the sluggish United States economy. I am not going to attempt to parse Fed Chair Yellen's comments, but I would tend to discount the details. My view is that the Fed is analytically rudderless, and they are in the unenviable situation of making policy up as they go along. There are a number of cliffs over which the U.S. economy can tumble, but the base case remains that the Fed may begin to hike rates at some point in 2015. The question is how many rate hikes will occur before the next set of emergency rate cuts will be required.

Helicopter Money Does Not Exist. And If It Did, It Would Be A Bad Idea.

Since Quantitative Easing has proven to be an abject failure, the question has arisen: why not use "helicopter money", and why is the subject taboo? My argument is that there is no such thing as "helicopter money", and even if we approximate the idea with a small fiscal programme under the control of the central bank, it would probably be a bad idea.

Further Comments On The Apparent Limitations Of OLG Models

This article is a short response to the article Sam and Janet go to College, by Professor Roger Farmer. The original impetus for that article was to respond to comments I made earlier. I have looked at the papers he suggested, and I am still circling back to roughly where I was earlier with regards to overlapping generations (OLG) models. I still have not found any OLG models which meet my fairly strong criteria for what constitutes a useful economic model for analysing fiscal policy. I explain those criteria here, as I did not want to spam his website with a 1000 word comment. Since the literature is huge, and I do not have access to an academic library, that does not mean such models do not exist. I am simply unaware of them. But they are certainly well hidden from the public domain. Moreover, I have my doubts about the analytical tractability of such models.

Capital Controls And Greek Euros

I am not well placed to forecast the outcome for Greece. My instinct remains that some form of deal will be cut, that will allow Syriza a chance to demonstrate whether it can undertake some positive reforms while remaining within the euro area. The run on the Greek banking system is the only thing that could derail a "muddling through" scenario. The odds appear to be rising of some form of capital controls being imposed. This could be a temporary measure, or it could create "Greek euros", which would become a de facto new currency.

Book Review: Post-Keynesian Economics (Lavoie)

Post-Keynesian Economics: New Foundations by Marc Lavoie is a masterful overview of post-Keynesian economic thought. It is an academic text, and it is aimed at readers with a good understanding of economics already under their belt. Within the text, he draws upon the different schools of thought that comprise post-Keynesian economics, and shows that they provide a coherent understanding of macroeconomics.It is an excellent resource for those who aim to have a detailed understanding of economic thought.

Understanding The "Debt Burden" Debate

Looking at my previous article, I realise that it is possibly unclear what the "debt burden" debate is about. I provided links, but my feeling is that the linked articles are probably more complex than necessary. In this article, I provide a quick primer on the debate, without attempting to answer which side is right.