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I read the Pollick and Lascelles piece as well and thought it was excellent. It would be interesting to see how shocks to the TD Effective Measure impact Canadian macro variables compared with traditional monetary policy reaction functions.

Brendon: there are a bunch of fun things that macroeconometricians could try by playing around with the Pollick/Lascelles measure. I would like to see a regression of deviations of CPI from target on 2-year lagged P/L spread. If it's negative, that means the BoC should have paid more attention to the P/L information (had it existed). (That's in line with the thinking behind my previous posts on why it's so hard to estimate multipliers, and how to improve policy.)

What about Bernanke and Blinder (AER 1989)?

I'd like to see this TD effective measure calculated for the US market. Lots of stories as to how credit spreads have reached unprecented levels in the US but their measure for Canada shows TD now not as even as high as it was say around 2001.

PCLE: "What about Bernanke and Blinder (AER 1989)?" 1988? Dunno. It's a story of intermediaries, therefore under 1? But it's more a story of the transmission mechanism of orthodox monetary policy. What do you (or anyone else) think?

The ISLM model is an equilibrium model. It suffers by presupposing an equilibrium that does not exist in the meaningful time frame.

Most economists would claim that the (a) problem with ISLM is that it is NOT an equilibrium model.

Look, given a few minutes, one could think up 101 problems with ISLM: no supply side; assumes 1 good; no stocks other than M; no LR govt. budget constraint; closed economy; ignores demographics, expectations, etc., etc.

But so what? All models are false; there are only models.

What about that second wedge?

There was a tangentially related post on nakedcapitalism:


I don't have the background to evaluate the model (for all I know Keen could be a complete nut), but on the service it looks interesting...

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