# Tag Info

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Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy? That depends on your definition of MMT, because it is not generally agreed on what it even is. You will find some arguing it is just a macro/monetary theory (such as the Wikipedia page) but then I seen MMT proponents on this site arguing it is a whole new paradigm ...

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No, term deposits aren’t affected, it’s a change reflecting how often transfers can be made from savings accounts, which changed last April. Per their announcements page: As announced on December 17, 2020, the Board's Statistical Release H.6, "Money Stock Measures," will recognize savings deposits as a type of transaction account, starting with ...

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Here is an example where the two are actually compatible: The consumer's utility function $U:\mathbb{R}_+\to\mathbb{R}$ is given by $U(c,1-n_ns)=c-n_s$, the initial labor endowment is $1$ and $F:\mathbb{R}_+\to\mathbb{R}$ is given by $$F(n)=n(1-e^{-n}).$$ This function has IRTS, but still turns a unit of labor into less than one unit of consumption at any ...

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Note that: (i) exploitation of returns to scale is not without limits when $n_s \leq 1$ (this actually excludes global returns to scale for any value of $(c,n)$) (ii) the firm can produce something from nothing as $F(0) \geq 0$ In this case the Figure below illustrates that a competitive equilibrium with positive profit can exist. Given (i) and (ii), the ...

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No. Consider the following problem: Each period, one total unit of consumption falls from the sky that can be distributed between the two agents in any way. Their per-period utility is simply how much they consume. We let $\alpha=1/2$. Assume that $\beta_1>\beta_2$; the first agent is more patient. All optimal allocations have a very simple form: The ...

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If $oil_t$ is the worldwide price of oil, neither $\rho$ nor $e_t$ are determined in a country specific model (unless the country's economy is so large that it affects global oil demand, which is not the case here). Because there is no feedback from domestic variables to the worldwide oil price $e_t$ is the structural shock if AR(1) is an appropriate model ...

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If the variables are constant, everything in the equation is time-invariant, while $a^t$ will still grow or fall over time (unless $a=1$). This is a contradiction and no steady state exists, unless $a=1$.

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A great up to date treatment that I keep coming back to is Ramey (2016). It discusses identification in both articles you refer to. The short answer to your question is that obtaining structural shocks is always based on theoretical reasoning and assumption imposition including in both of your examples (e.g. Christiano Eichenbaum Evans (1999), Gali (1999)). ...

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I am not sure if this is exactly what you are looking for, but this paper has model that sounds like what you want: Shimer, Robert, 2006. “On-the-job search and strategic bargaining, ”European EconomicReview50, 811—830. Have a look at this one too: Shimer, R. (2007). Mismatch. American Economic Review, 97(4), 1074-1101.

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Where does the money come from to pay Americans such a generous stimulus? As any government US raises its money through combination of taxes, debt and monetary financing. In economics terms government budget constraint (in static form) is given by: $$G-T= \beta+ \theta \implies G = T+\beta+\theta$$ where $G$ is government spending, $T$ is the net tax ...

2

Generally speaking, there is a strong disincentive to break up. The firms did not become large by accident. It improves shareholder value. Assuming the banks were not breaking any laws, it would be considered a "taking" under federal law to try and break them up using some excuse under the Commerce Clause. In other words, the Federal Government ...

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When you are using implicit differentiation along a level curve you will treat the variable with respect to which you are differentiating as a single variable, rather than function. This is because the formula for implicit differentiation along level curve is already based previous derivation where you already solve for $y'$. For example, for general ...

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I think what your quote is trying to say is: Investors have bid up US stocks to the point where their valuation ratios (e.g. pe) are high relative to other countries. This could lead investors to rebalance in favor of other stocks. Hence the downward pressure on the dollar. Whether or not that argument makes sense is another questions (about which I have my ...

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The potential risk of borrowing too much now is that interest rates will be higher when the debt has to be rolled over. Even though it is completely correct to say that most government securities have fixed interest rate, most of these securities are not perpetual, meaning they expire at some point. For example, as mentioned on the UK Debt Management Office ...

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GDP is the total amount of domestically produced output in the referred period. If $C^H$ is the consumption of domesticly produced goods, $C^F$ is the cosumption of goods produced abroad, $G^H$ is the government expenditure on domesticly produced goods, $G^F$ is the government expenditure on goods produced abroad and so on we have: GDP = C^H + G^H + I^H + ...

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(Note: there were similar questions in the past, but I did not see an exact match.) As used in this question, “interest rates” are the rate of interest associated with a policy rate or a deposit. A “yield” is the the rate of return on a bond given its purchase price. For a bond, since the payments are fixed, the yield moves inversely with price. If we ...

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Business cycle frequency is a frequency that has the length of one business cycle. Business cycle is: economy-wide fluctuations in production, trade, and general economic activity. From a conceptual perspective, the business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and ...

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Maybe this will help: imagine that trade is done in the currency of the foreign country. Suppose you are American, you are standing on the border of Mexico, and you sell a hot dog to a Mexican for 20 pesos. Now you want to buy tacos from him, but you want 30 pesos of tacos. So he lends you 10 pesos, then you buy the tacos. So X=20, M=30, and net exports= -10 ...

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Stated goal of monetary policy is low and stable inflation: https://www.bankofengland.co.uk/monetary-policy Tools for setting monetary policy are bank rate and quantitative easing or asset purchase programs. One way to view the central bank tools is to identify the combination of the government deficit spending and private credit market system as the two ...

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What is the resolution down to which the annual inflation value can be controlled? They can target arbitrary number. For example, they can target $1.9999\%$ or $3.1415\%$. Could it be set, for the sake of the example, to 1.9% instead? Or to 1.95%? Yes, it could. However, the target inflation rate is more or less aspirational and it is the value Fed aims ...

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According to advocates of MMT, the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending capacity of the private sector. This statement is in accord with MMT, and it can be traced back to the concept of Functional Finance. One could do a search for Abba Lerner’s articles on ...

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That is not correct conclusion and there are several problems with the formulation you use. $A$ is not a shock - it is a technology parameter of production function (see Woodford Interest and Prices pp 148). Heck, $A$ cannot even be zero. Following Woodford: $A_t> 0$ is a time-varying exogenous technology factor there can be shocks to $A_t$ that ...

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is it even possible to have such a model, even on the macro level? Yes, it is entirely possible. There are large scale general equilibrium models that would be able to answer those sort of questions. For example, the questions you are asking could be answered with dynamic stochastic general equilibrium (DSGE) models. Namely, you want some large-scale ...

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Depends on the structure. In the US, most residential MBS are pass-through, so the MBS is prepaid. In Canada, MBS are (or at least were) mostly packaged into non-passthrough structures, so MBS cash flows follow fixed coupon schedule. There are prepayment penalties which are used to absorb the cash flows. My understanding is that European pfandebriefe ...

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This is not really a riddle. First, amount of money in economy is not constant. The amount of money economy has access to is typically growing thanks to policy of central bank/government. For example, you can see from Fred data that amount of money in the US measured by $M2$ increases over time (you can check similar statistics for almost any other country ...

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This simplification of the infinite sum is commonly made by a differencing approach. You can see here an example of this approach in this kind of models. Regarding with the assumptions mentioned by you, for $\hat{mc}_t$ since it's a deviation from the levels variable steady state, in the equilibrium there's no expectations and therefore \$mc_t=mc\implies \hat{...

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And considering the whole world--it's a closed system... But the world is not a closed system. The Sun has continually pumped energy into it for billions of years, thus: constantly making more plants (including trees and food), while leaving abundant amounts of coal, oil and natural gas, and powering the weather, which in addition to recycling water, ...

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