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Friday, June 5, 2020

Labour Market Bounce

Both Canadian and American labour market data for May surprised to the upside, and the Treasury market has been monkey-hammered.

My view always was that guessing what would happen this month is a bit of a waste of time, and we won't get a clean read until the June data. A mechanical bounce in employment was always in the cards, the question is when, and at what levels.

(I am off for a bike ride, and will probably update this post with charts later in the day.)


Wednesday, June 3, 2020

Comments On John Quiggin's "Motte and Bailey" Complaint


John Quiggin wrote a review of the MMT textbook -- "Modern Monetary Theory: Neither modern, nor monetary, nor (mainly) theoretical." Although the title has a negative tone, the review is relatively positive. The main complaint is about the gap between "academic MMT" and "popular MMT." I have noted this distinction in the past, and I have limited sympathies with his viewpoint. However, I am unsure how anyone can attempt to police the comments of enthusiastic supporters across a wide variety of internet platforms (like blogs!).

The review is of the textbook Macroeconomics, by William Mitchell, L. Randall Wray, and Martin Watts (Amazon affiliate link). For brevity, I will refer to the text as MWW.

Saturday, May 30, 2020

Comments On Tyler Cowen's Review Of "The Deficit Myth"


Tyler Cowen did a review of "The Deficit Myth" by Stephanie Kelton, which is to be released June 9 (Amazon affiliate link). Since I have not read the book yet myself, I cannot comment on his views about the book. However, Cowen makes some criticisms of Modern Monetary Theory (MMT) that are worthwhile responding to.

I am turning to writing a short primer on MMT, and will probably have a chapter on critiques that I feel are useful. (My estimate is that over 90% of "MMT critiques" consist of people making stuff up, based on the contents of other "critiques.") I expect that I could use some of the discussion here as examples. The review consists of a dozen numbered short points, and I will only respond to the ones that I see as being useful, and not solely related to the book.

Wednesday, May 27, 2020

Moving Into The New "Normal"

Figure: Unemployment Rates, Canada And Quebec

My local economy appears to be moving towards what is best called the New "Normal:" a state of muddling through in such a fashion so as to keep the spread of the coronavirus under control. From an economy-watching perspective, the closest to clean data for Canada and Quebec will appear in June. Since the latest official unemployment rate data (above) is for April, the implication is that it will be considerable time for the data to catch up.

Friday, May 22, 2020

The Incoherence Of Yield Curve Control

Chart: Long-Term Treasury Yields And Yield Cap

Yield curve control -- setting bond yields by the central bank -- has returned to discussion. Mainstream economics over-emphasises the role of interest rates in guiding the economy, and based on previous experience, it seems entirely likely that some form of new policy will be attempted to counter-act economic weakness. The main options appear to be negative interest rates and yield curve control, and it seems clear that Fed officials prefer yield curve control to negative rates, Yield curve control will either accomplish very little, or be viewed as a mistake in retrospect. That said, it is still a more sensible policy that large scale purchases of Treasurys by the Fed (Quantitative Easing).

Wednesday, May 20, 2020

Update: The World's Simplest Bond Model

Chart: World's Simplest Bond Model

I ran across a comment to the effect that Modern Monetary Theory (MMT) somehow is missing a theory of interest rates. Given that the MMT description of interest rates is that it is driven by expectations, and that my view is that this is the most solid way to understand interest rates, I was slightly annoyed.


Saturday, May 16, 2020

Bank Of Canada: Repo Printer Go Brrr!

Figure: Bank of Canada Assets
The Bank of Canada has completely restructured its balance sheet in response to pandemic stresses, causing it to resemble that of the Federal Reserve (above figure). The size of the balance sheet has exploded, creating yet another time series terminated with a vertical line. If we look at the assets, we see that repurchase agreements ("repos") went from a nearly insignificant asset to about half the balance sheet (as happened in the Financial Crisis of 2008).