Worthwhile Canadian Initiative

Banking "mysticism" and the hot potato

Paul Krugman seems to have gotten into an argument with the MMT guys about commercial banks creating money. I'm just giving my own views on this question. I'm basically following Leland Yeager [update: and David Laidler]. Strangely, while I agree with the MMT guys on many points (banks do create money out of thin air) I end up (I think) in much the same place as Paul.

Blue sky money three: boomerang money

This post meanders and doesn't really come to any clear conclusion. Read at your own risk.

Imagine, just imagine, that every dollar I spent was attached to a very long rubber band; and sooner or later it would return to my wallet to buy something I wanted to sell. Or that every dollar I spent had my name on it, and would eventually return to me to be redeemed for my goods and services. Think of it as "boomerang money", that always returns to the sender.

Bleg: Ph.D. Thesis Defense Advice for Economists

Not so much a blog post as it is a cry for help.

I am finally defending my thesis on Tuesday.  I am at a Business School (Ivey), but the thesis, Revenue Management in Multi-Firm, Multi-Product Price Competition is of a traditional Industrial Organization sort.

For those of you who have been through the process - any advice? I could use the help, but I am also hoping this thread is useful for others who will go through the same process.

Live, on tape delay, it's the federal budget

I'm about to leave for Ottawa to take part in this conference (program here). My original plan was to arrive early and spend the day touring Ottawa, but then the government decided that March 29 would also be budget day.

So I'll be spending the day instead at the budget lockup with the Globe and Mail team. I'll be taking notes and I'll post them when I'm able.

In the meantime, let this be the post where people discuss the budget in the comments.

Update: I'm free!

Should Canadian professors be paid in US dollars?

A recent study claims that Canadian university professors are - as the Toronto Star put it -  "the best-paid in the world".

The media reports should be interpreted with caution. The study is restricted to professors at public universities, hence excludes the highest earning academics in the US and, possibly, other countries. "The world" turns out to be a selection of 28 nations, including countries as diverse as Nigeria, Latvia, Saudi Arabia and South Africa. A number of wealthy nations such as Austria, Switzerland, and Sweden are excluded. The quality of the salary data varies from country to country. The Canadian figures, which are based on Statistics Canada's census of Canadian academics, are very accurate. The salary estimates for some other countries are based on lower quality data sources.

Ontario's 2012 Budget: Bending the Spending Curve

Well the Ontario budget is out and despite all the talk of 30 percent across-the-board budget cutting in the wake of the Drummond Report, it forecasts more a deceleration of spending growth rather than steep cuts. 

Do economics majors need to learn Excel?

My first job after finishing my undergraduate degree in economics involved using Lotus 1-2-3 - the first "killer app" spreadsheet program - to create graphs. I'd never been taught to use a spreadsheet, but I worked it out.

Fast forward a couple of decades. Spreadsheets are ubiquitious in the workplace. When a new research assistant joins the Bank of Canada, their first job - like mine - is crunching data with a spreadsheet. Yet, at some universities, it is possible to graduate with an economics degree and never learn how to use Excel.

What is a University President Worth?

Along with the Canada geese returning home and the melting snow revealing buds of green growth, another sign of spring in Ontario is the unveiling of the sunshine list – those individuals in the Ontario public sector and broader public sector earning $100,000 or more.  Included as always on the 2012 list are university salaries (for 2011) and given the occupy movement and the preoccupation with the top one percent a glance at university CEO salaries can be entertaining.

Greece, barter, and the gap-cubed law of new exchange systems

In the past, I have argued for the theory that recessions are always and everywhere a monetary (medium of exchange) phenomenon. How to test that theory?

Non-monetary exchange (barter) is usually very costly, so people use money instead. But in a recession, if my view of recessions is correct, the benefits of resorting to barter rise, and may sometimes exceed the costs, as I argued here. This allows us to test the theory, by seeing if the use of barter does in fact increase during a recession. Alex Tabarrok did a much better job than I did in presenting empirical evidence to test and support the theory.

I now have one new bit of evidence in support of the theory, from Greece via The Guardian (H/T Freakonomics). Greeks are finding ways to exchange goods (including their own labour) without using Euros.

Teaching Purchasing Power Parity

This is a simple post about how I have been teaching Purchasing Power Parity in ECON1000 for the last couple of years.

FIRE! FIRE in the labour market!

The story of the Canadian labour market in the second half of 2011 was a recovery knocked off course by events in international financial markets. The crises associated with the US debt ceiling and European sovereign debt drove down commodity prices and the Canadian dollar.

So the fact that employment growth slowed in the wake of the uncertainty in financial markets seems unsurprising. Moreover, it seems plausible that one of the hardest-hit sectors would be those who worked in financial markets: the FIRE sector (finance, insurance and real estate).

But it's not at all clear to me that this is in fact what's going on.

International finance with no international trade

Sometimes I like to make assumptions I know are totally false. Not (or not always) for simplicity, but just to see what happens. It helps me understand the world better. For example, sometimes I like to assume a barter economy; it helps me understand monetary exchange better to see what would happen if we didn't have monetary exchange.

In this case, what I want to understand better is cross-country interest rate differentials. And the effects of international trade, and the effects of a common currency, on those interest rate differentials.

The results are a bit weird, and I'm not quite sure what lessons to draw.

A river keeper's story

There is a canoe put-in on the Rideau River known as "Thomson's Landing." It is marked by a six foot high stake, against which Mr Harry Thomson (for whom the put-in is named) tracked the height of the Rideau River's spring flood for almost 50 years.

Who is More Fiscally Sustainable: Ottawa or Queen's Park?

Both the Federal and Ontario budgets are nearly upon us and the key watchword for both is going to be the sustainability of the public finances. 

Test driving Canada's new open data portal

Canada, following the lead of the US (http://data.gov), the UK (http://data.gov.uk/), and Australia (http://www.ands.org.au/) has created a new open data portal, http://data.gc.ca.

The data portal contains all of Statistics Canada's CANSIM data, as well as data from the Department of Finance, Health Canada, Environment Canada, Transport Canada, Citizen and Immigration Canada, and so on.

To try out the data portal, I gave it a couple of tests.

Teen Sex and Econometrics

The Canadian Community Health Survey asks respondents "In the past 12 months, have you had sexual intercourse?". The overwhelming majority of 18 to 19 years, when asked that question, answered....

Teaching SRAS shocks

I hate teaching Short Run Aggregate Supply shocks.

1. It's easy to teach them wrong.

2. I don't understand them very well.

3. I don't think anyone understands them very well.

Dealing with the Baby Boom: You Only Die Once

It has been a week of immersion in health economics for me.  Last Friday, we had Herb Emery from Calgary visiting Lakehead and he gave a seminar presentation on generational balance and public health care spending in Canada.  I also just got back from a workshop on health expenditure forecasting and along with last Friday’s speaker’s presentation it has certainly provided me with much food for thought. There were a number of issues that came up at the health expenditure workshop I attended but the most intriguing ones dealt with the effect of an aging population on health spending. 

Inflation targeting, American put options, and the liability of central banks

My last post was about whether money was a liability of the issuer.

Lee Kelly, in a comment, summed up my thoughts:

"Base money isn't really a liability of the central bank, but good monetary policy usually involves pretending that it is, e.g. by instituting a nominal GDP or inflation target."

The Bank of Canada targets 2% CPI inflation. In what sense does that promise to keep inflation at the 2% target create a liability for the Bank of Canada? How big is that liability?

My answer: by targeting inflation the Bank of Canada has written an American put option on base money. That put option has a strike price that declines at 2% per year measured against the CPI basket, and has an indefinite expiry date. Base money is not a liability of the Bank of Canada. The put option is a liability of the Bank of Canada. The value of that put option, and the liability of the Bank of Canada, is always less than the value of the monetary base.

How to videos by MumblingProfessor

I've created some videos (screen recordings) for my third year taxation course, showing how to download data from CANSIM, adjust it for inflation, and do some other basic analysis.