There's something funny/ironic about "everyone should have a Fed account".
The best interpretation (IMO) of the canonical NK Macro model is that everyone *does* have a Fed account.
That Fed account is the only money they use, to buy&sell everything else. 1/3
An individual's account balance can be +ve or -ve (overdraft).
But aggregate balances always sum to net $0.
And with sorta identical individuals ("representative agent"), each individual balance will be $0 too.
It *looks like* there's no money in the model.
But there is. 2/3
And the Fed in that model does monetary policy not by changing the money supply (balances always net to $0), but by changing the interest rate paid on everyone's Fed accounts, to change their incentive to try to hoard/dishoard money. (No other banks or currency.) 3/3
BTW, the above is not an argument either pro or con the idea of individual accounts at Central Banks.
It's really about interpretations of NK macro models.
And thought-experiments.
(And things I find funny/ironic, because CBs use those models but don't do those accounts).
I once ("just once?") had a daft thought-experiment, where people used negatively-valued money.
(Sorta like using garbage as money, where you have to give someone apples to take your garbage money away.)
Then realised I was talking about overdrafts.…

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More from @MacRoweNick

15 Oct
Short thread on "automatic stabilisers"
(properties of a policy regime that reduce the effect of shocks (especially AD shocks), even before the policymakers observe that shock, respond to it, and their response offsets the shock).
We need "automatic stabilisers" because of lags.

Fiscal policy regimes can have automatic stabilisers.

Monetary policy regimes can have automatic stabilisers too.
But if I say "automatic stabilisers", you are probably thinking "fiscal policy" (stuff like unemployment insurance and progressive taxes), and not "monetary policy", right?
I wonder why that is?
The same concept applies to *both* fiscal and monetary policy regimes.
Read 12 tweets
12 Aug
A short thread on "S=I":
(I'm subtweeting a lot of you 😀)
Simple thought-experiment:
Imagine a monetary economy where *all* goods that are traded are *investment* goods (like e.g. new houses, that yield a flow of services to their owner-occupiers). 1/
Then, for some reason, people start spending their stock of money more quickly (i.e. Velocity rises).
Investment and Saving (and output and income) all rise by the same amount.
Remember: "Saving" is defined as income from production that is *not* spent on Consumption goods. 2/
Or maybe it was "money creation", rather than a rise in V, that raised MV. Same thing.
"Credit creation" (borrowing/lending money) adds nothing to this story (unless it's the reason V increased).
But if the Central Bank holds MV constant (targets PY=NGDP) my story won't work. 3/
Read 4 tweets
6 Oct 19
This is wrong.
Debt may (or may not) be a burden on future generations.
Regardless of whether it crowds out investment (or is owed to foreigners).
This is basic OverLapping Generations economics.
Future generations inherit the tax liability inherent in the debt. (Whether there *necessarily is* a future tax liability depends on whether r>g or r<g.)
Future generations do not *inherit* the bonds; they *buy* those bonds. (Unless you believe in Ricardian Equivalence.)
"Debt is money we owe to ourselves" is only true for a world of infinitely-lived people who never have kids.
Or a world where people *give* (nor *sell*) their kids the govt bonds, because they want to compensate their kids for the future tax liability.
Read 11 tweets
13 Jul 19
A thread on why using Fiscal Policy (not Monetary Policy) to control Y (and so control inflation) is a Bad Idea.
This is a followup to my previous thread (RTd below).
It's also going to be a bit harder.
Praying I don't mess it up. 1/n
To Keep It Simple (for me) I'm only going to consider a Closed Economy.
Remember (from previous thread):
We want 2 things:
1. We want the right *Total* Y (fullish employment, keeping inflation controlled)
2. We also want the right *Mix* of Y (between C & I & G)
If we had the True Model of the economy, this would be easy.
Any mathematician could solve for the endogenous {C,I,G} given the policy instruments {G,T,R}.
Or solve it in reverse, for the settings of the policy instruments needed to get the right Total and right Mix.
Read 16 tweets
26 Nov 18
Lucas '72, which is (sorta) where microfoundations all began, is a heterogeneous agent model.
It has: old agents (consumers); young agents (producers) on island 1; young agents (producers) on island 2; etc.
It doesn't work with only 1 type of agent (or 1 island). 1/n
Larry Ball's "yeoman farmer" interpretation of the NK model is also, in a sense, a heterogenous agent model. Each agent has a comparative advantage and specialises in producing a different type of fruit, which they trade.
It doesn't work if they all produce the same fruit. 2/n
Or, you can reinterpret the NK model as having literally identical households but heterogeneous firms, each specialising in producing a different type of fruit.
Again, it doesn't work if they all produce the same fruit. 3/n
Read 7 tweets
30 Jul 18
If I see one more "heterodox" view on the "orthodox" view on "loanable funds" I'm gonna........well, let me do this short thread, instead of heading back to the lake with my canoe: /1
First, if any view is currently "orthodox" in Macro, it is the New Keynesian/Neo-Wicksellian view.
That is the view held by (most?) central bankers & used to guide policy, and taught in (most?) upper-year & grad macro courses. /2
According to that "orthodox" view:
In the Short Run, the (short-term, safe, nominal) rate of interest is set by the central bank at whatever it wants to set it at (subject to ZLB constraints).
This is a pure Liquidity Preference theory of the rate of interest. /3
Read 9 tweets

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