“There’s something wrong with everything. In macro; not, you know, in life.” That may not be a verbatim quotation, but I remember Tyler explaining this in PhD macro I, and it has stuck with me. You don’t really understand a school of macroeconomic thought until you can dispassionately evaluate both its strengths and weaknesses. If [...]

Tags: Austrian business cycle theory, Austrian economics, Bachmann, Cowen, Hayek, Kling, Kydland and Prescott, Long and Plosser, macro, Mises, Selgin, Sumner, Tea Party
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Paul Krugman disses RBC theory and those who study it as unscientific. I’m not an RBC theorist, but I’ll stick up for freshwater macro. Here are some reasons why RBC theory deserves more respect than Krugman gives it. 1. Suppose monetary policy is conducted so that all nominal shocks are perfectly offset. Zero percent of [...]

Tags: Caplin, Cowen, Krugman, legal restrictions theory, macro, monetary theory, New Keynesianism, real business cycles, Spulber
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I was chatting with a friend about the state of the economy, and I brought up how the monetary expansion that began in 2008 wasn’t actually stimulative because the Fed started paying interest on excess reserves. My friend expressed a little skepticism that excess reserves mirrored the monetary expansion one-for-one. But behold: No, it’s not [...]

Tags: macro, monetary stimulus
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Macro is hard; here is an attempt to make it easier. I will try to explain as much of macroeconomics as possible with a single graph. Dynamic AS/AD is pretty good, but I think we can do some interesting things by turning to portfolio theory. Macro is and always has been about investment. Keynes noted [...]

Tags: animal spirits, Cowen, fiscal stimulus, irrational exuberance, liquidity trap, macro, monetary stimulus, regime uncertainty, Risk and Business Cycles
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Tyler Cowen offers his non-Keynesian take on the recession, applying the theory he lays out in Risk and Business Cycles (recommended for all economics graduate students, but master Snowdon and Vane first). I agree with his arguments, but I want to add what I think is a missing ingredient in his theory: fat tails. David [...]

Tags: Cauchy distribution, Cowen, fat tails, Levy, macro, Modern Macroeconomics, Risk and Business Cycles, Snowdon, Vane
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Scott Sumner has drawn a lot of attention for his peculiar view that monetary policy was tight in 2008, and that this tightness was the cause of the current recession and the recent financial crisis. I think his argument is at least somewhat persuasive; I don’t know if (or think that) it was the whole [...]

Tags: ABC, Lucas, macro, monetary, monetary confusion, Sumner
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