Modern teaching of modern macroeconomics and modern monetary theory should reflect modern monetary policy -- what modern central banks actually do nowadays. That means the modern LM curve is vertical.
The Mundell Fleming model is usually taught in second year macroeconomics. It's the open economy version of the ISLM model.
This post is me disagreeing with Simon Wren-Lewis about teaching open economy macro (in textbooks and in the classroom). It is not a disagreement about open economy macroeconomics.
Simon says that the textbook Mundell Fleming model, in some circumstances (like a temporary increase in government spending), violates Uncovered Interest Parity.
I say that the textbook Mundell Fleming model always preserves Uncovered Interest Parity, but in some circumstances (like a temporary increase in government spending), violates model-consistent ("rational") expectations.
Big disagreement? Not really. But I think my way of looking at it is more intuitive.
It was sometime in the 1960's. My uncle was teaching in Bulgaria. He wanted to buy stuff in Britain, but wasn't allowed to take much money out of Bulgaria. My father was farming in Britain. He wanted to buy stuff in Bulgaria, but wasn't allowed to take much money out of Britain.
My uncle and father thought up a Cunning Plan. My father went to Bulgaria, where my uncle gave him money, and my father bought stuff. My uncle went to Britain, where my father gave him money, and my uncle bought stuff.
I’ve been doing some data exploration on public sector spending and societal outcomes and have some preliminary results that have caused me to puzzle about what they might mean. I’ve been looking at annual data for OECD countries (33 countries) over the period 2000 to 2010 and the relationship between public sector size and crime rates. Public sector size is defined as total government expenditure as a share of GDP. The crime variables were the number of homicides per 100,000 of population and the number of burglaries per 100,000 of population. The data is from the OECD and is essentially unbalanced panel data. The results for homicides did not surprise me but that for burglaries did.
Robert Gordon has argued in his recent NBER paper “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds” that growth rates have slowed and we are reverting to very low historical growth rates and indeed a period of economic stagnation. However, what I find intriguing is that an examination of some long-term data for Britain provides conflicting results that quite frankly puzzle me.
Andrew Coyne has an excellent piece in the National Post dealing with why there are no good reasons for corporate handouts in the wake of yet another round of assistance to the automobile sector. He asks what the economic rationale for this assistance is – that is, what is the economic value? He argues that what passes for economic arguments in support of corporate assistance and bailouts really are but “pseudo-arguments”. For example, we must subsidize the auto industry because we must be in the automobile business – in essence, the auto industry is special. Or, other countries are assisting their manufacturing sectors with subsidies so we need to do so to compete.
The Parliamentary Budget Office's most recent release "The Fiscal Impact of Federal Personnel Expenses: Trends and Developments" provides some interesting statistics on the amounts of employee compensation paid by Canada’s federal government. According to the report: “in 2011-12, Canada’s federal personnel expenses were $43.8 B, or 2.55 per cent of GDP. These expenses supported a workforce of 375,500 employees and provided approximately $114,100 on average in total compensation per employee.” Media reports attributed to the President of the Treasury Board claiming that these average compensation amounts were inaccurate and that actual compensation was lower (Tony Clement said the average compensation was closer to $95,000) were rebutted by the PBO with an information update. As entertaining as all this was, the fact is that any discussion of public employee compensation in Canada should cover more than just the federal government and that it might be more appropriate to compare us to where we stand relative to other countries.
Several posts ago, I presented some numbers by Angus Maddison on the evolution of global GDP output shares over the period 1500 to 2001 which showed that Asia’s share of world GDP declined from 1500 to about the mid 20th century but has since been rising. I decided to try and do a bit of an update using the IMF’s World Economic Outlook 2012 Data Tables which provide GDP in US purchasing power parity dollars up to 2011 and then estimates after that to the year 2017. The results are both simple and complex.
In a post on iPolitics, author and journalist Madelaine Drohan discusses the move by the PQ government in Quebec to embrace the Generations Fund - a sovereign wealth fund created by the Liberal government of Jean Charest in 2006. The original plan was to invest water power and mining royalties into a fund whose income would be used to pay down the provincial debt. The fund was apparently valued at 4.3 billion dollars at the end of March 2012 and the recent PQ budget has directed that starting in 2015-16, all mining royalty revenues – about 325 million dollars a year – would go into the fund. Given the prospect of future mining development in Quebec’s North under the auspices of the Plan Nord, this fund could grow substantially in the future.
Well, it has been an exciting couple of days in Canada on the policy side given the juxtaposition of the following news: 1) the federal by-election results suggest a more competitive political environment for the federal Conservatives in the stronghold of Alberta 2) the world-class City of Toronto is deposing its Mayor over a conflict of interest involving a high-school football team 3) the federal government is raising the limit on tax-free savings account contributions by 500 dollars and 4) Mark Carney is heading off to the Bank of England. What’s the connection?
The Conference Board of Canada has chimed in on what ails Ontario and how to get it moving in a recently released report titled Needed: A Comprehensive Growth Strategy for Ontario. The report argues that after rebounding from the 2008-09 recession, Ontario has slipped into tepid growth of around 2 percent annually and needs a comprehensive economic growth strategy to improve its long-term growth potential. What is to be done?
Given that the Finance Minister is presenting the Federal Fiscal Update today in Fredericton, it is instructive to review some fiscal comparisons right out of the release of the 2012 Federal Fiscal Reference Tables (which in turn used the OECD Economic Outlook May 2012 numbers for the international comparison). Figure 1 plots the ratio of total general government receipts to GDP for the period 1991 to 2011 for the G-7 while Figure 2 plots expenditures as a share of GDP.
The Conference Board is having a Summit on Sustainable Health and Health Care October 30th and 31st in Toronto featuring a plethora of media, industry, health service and academic experts who will focus on the need to refocus the health system “from treating acute illness to preventing and managing chronic disease so governments, healthcare leaders and businesses need to combine forces to help all Canadians lead healthier lives.” They will discuss the transformation of health care, inequalities in health care, workplace wellness initiatives, health management, intelligent funding, end of life decisions and health and the social media revolution. It all sounds like a really swell time. There will probably even be a couple of nice meals and lots of social networking. Here what they should also be discussing – where is the value for money in Canada’s health care system?