New answers tagged macroeconomics
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This answer will not help you get a good grade in course using a mainstream textbook, but it points you into the direction of the real world answer.
The text “Full Employment Abandoned: Shifting Sands and Policy Failures” by William Mitchell and Joan Muysken gives the history of the “full employment framework” and its demise.
If we look at the 1948 Universal ...
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This is actually one of the more exciting development in DSGE modelling since financial crisis. Including financial sector or friction is definitely a growing area of research and interest.
Unfortunately its quite a new development so there are not that many papers yet out there (however if you consider doing research in this field that also means there is a ...
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There's a bunch of things you could look at. Here's a couple:
Foreign currency reserves. Does Switzerland have a lot of dollars on hand? If so, there's nothing to worry about, the peg will hold. Switzerland can just buy CHF using dollars, increasing the demand and therefore the price, until the price is back to normal. (CHF is the abbreviation for the Swiss ...
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There is a nice review from Petra Moser (NYU) on Patents and Innovation: Evidence from Economic History in the Journal of Economic Perspectives (2013).
There is another paper on The Choice between Formal and Informal Intellectual Property: A Review, in the Journal of Economic Literature (2014), where the role of innovation is central.
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As Brian mentions in his comments this is because in standard models when people make intertemporal decisions they take inflation into the account. Take the following example:
You have a rational utility maximizing person who makes decision between consuming $\\\$100$ today or saving it for later consumption. For simplicity lets assume discount factor is ...
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This is hard to answer because it is disputable if entrepreneurship is a factor of production just to begin with. There are economists who would argue that any entrepreneurial activity already falls under labor/human capital.
Setting the caveat above aside there are two major views on how entrepreneurship as a factor should be treated (see here). In one view ...
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When a bank issues a loan, the money must end up with another bank. Therefore, the banking system as a whole can never lose money. Only the dumb banks which make loans that arent repaid can ever lose money.
This premise is incorrect, but it depends upon what is meant by “losing money.”
The usual English usage of “lose money” is not being profitable. All ...
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Recessions are defined as fall in output (usually measured as a consecutive two quarters of negative GDP growth) not loss of money. Output (GDP) might very well fall even when firms are on average more profitable and people earn more money.
For example, in the 2020Q2 the median wage in US actually increased according to U.S. Bureau of Labor Statistics, yet ...
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Good question!
I think the Austrian Theory of the Business Cycle (or perhaps more accurately, the "Credit Cycle") can help shed some light on how recession, banking and money can be connected.
Let's imagine a country with vast farmlands. A number of entrepreneurs open warehouses that offers 2 services. A farmer can deposit his excess grain for a ...
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Beyond Michel De Vroey's book, I know of no other book on the history of macroeconomics, as it is praised by macroeconomists. See for example this review.
De Vroey has a true vision of macroeconomics, he shares it with his reader and gives clear guidelines to understand the developments in the field.
Anyway, you will find below some nice references that ...
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The assertion that a trade deficit must be financed by foreign borrowing is technically incorrect (although it is often approximately true).
The accounting identity for international transactions has a few extra terms, one of which is grants between governments (foreign aid). A country could run a trade deficit financed by foreign aid.
Equity financing also ...
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There are practical problems with having 'real loan' even though theoretically they would actually be desirable (as paper "The Impact of Inflation on Long-Term Housing Loans" by Tschach, Ingo E.) if they would be practical.
We do not know what the current inflation is.
This statement is simply incorrect:
Of course we will need to know the ...
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I do not think this answer is definitive, but want to point out that there are two very different regimes: pegged or floating currencies.
For a pegged currency, the central bank (or similar body) is attempting to keep the currency value pegged to an external currency or gold. (I am assuming this is a traditional peg, and not a currency board.) A current ...
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ELI5: What actually makes makes currency worth anything? : explainlikeimfive
One reason why fiat money has value, is that the government insists that people pay taxes, and the only payment of taxes they will accept is in their own currency. So, everyone has to earn or acquire enough in that currency to pay their taxes.
You asked
If one day individuals ...
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Unless I misunderstand the question these seem to be complementing events with probabilities $p$ and $1-p$.
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I wrote some simple Matlab code which solves a stochastic optimal growth model via Euler function (Coleman policy) iteration, and then again with value function iteration. You can find here.
I uploaded it because I also noticed that basically the only other source of code for this stuff is QuantEcon.
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Reinhart and Rogoff (2010, RR) claimed that GDP growth is much lower when debt/GDP > 90%.
Herndon, Ash, and Pollin (2014, PDF, HAP) placed their errors into four categories:
Spreadsheet error: RR omitted Australia, Austria, Belgium, Canada and Denmark from the analysis (apparently a coding error somehow dropped the first five countries when sorted ...
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The paper by Herndon et al. shows that there were "coding errors, selective exclusion of available data, and unconventional weighting of summary statistics". So it's a little deeper than a mere "spreadsheet error" and isn't software-specific, but the term makes good press. Herndon was interviewed on the Colbert Report and I believe that ...
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One place that estimates the world's wealth (measured as net value of assets) is the Credit Suisse Global Wealth Report.
According to the report their estimation of worlds net assets is 361 trillion of USD in 2019. Their site has also statistics for other years. They also offer some country level statistics in their reports (not sure if that's granular ...
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Good question!
An important thing to understand about the word "Capitalism" as used by Schiff is that he views economics from the framework of the so-called "Austrian School". They reject the validity of a lot of mainstream concepts ("rational actors", "utility functions", and basically all mathematical/statistical ...
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Here is a graph of labor productivity per hour for the United States since WWII.
This is fairly typical of capitalist economies. Even Karl Marx and revolutionary socialists recognize that increasing labor productivity is a general characteristic of capitalism. So yes, the pie keeps getting bigger and bigger as a result of this in combination with population ...
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Government can have savings while having deficit because we are just talking about savings not net savings.
For example, imagine that government has zero tax revenue $\\\$10$ spending and $\\\$10$ of public investment. In this case the government is running deficit of $\\\$20$ yet it is also saving through investment. Due to the deficit being larger than ...
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Slightly different but perhaps relevant. A friend of mine spent some time during the late 1960s transporting counterfeit American Express Travelers Checks into Laos, that the CIA was using to fund its operations. He traveled on US military transport aircraft from Saigon to the capital of Laos (whose name I forget). The amount was significant, suitcases full. ...
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Very obscure historical example:
From 1287 to 1295, the Danish nobleman Stig Andersen Hvide was leading a band of outlaws from the island of Hjelm supported by the king of Norway against the king of Denmark. Stig managed to kidnap expert coin makers and bring them to Hjelm, where they produced counterfeit Danish coins.
This allowed Stig and his supporters to ...
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What determines interest rates?
Let's try to understand the emergence of interest rates from first principles. We'll imagine an island inhabited only by Robinson Crusoe and Friday. For sustenance, they pick coconuts - the only food source available to them. Each coconut can either be consumed immediately or saved up for future use.
One day, Crusoe does not ...
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https://en.wikipedia.org/wiki/Operation_Bernhard (an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British economy during the Second World War. )
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David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe"
In December 1925, a group of Hungarian nationalists were caught trying to put into circulation a large quantity of counterfeit francs in a bid to weaken the French economy and fund irredentist action in Central Europe.
Edit:
...
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Velocity of money is according to the Fed definition:
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time.
Hence paying taxes/transfers is not ...
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The natural interest rate is theoretical, so it can only be estimated.
With regard to the drivers of interest rates, Kaplan (head of the Dallas Fed) explains:
The neutral rate can be measured for different time horizons.
Estimates of the “shorter-run” neutral rate are typically influenced
by nonmonetary drivers of near-term GDP growth such as changes in
...
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The answer of Alecos Papadopoulos is excellent, but I have a tiny correction (I wanted to put it as a comment, but unfortunately this forum requires more reputation for commenting than for answering ... funny).
You do not need to multiply the constraints by the discount factor. The $\lambda_t$'s would get rescaled by a factor $1/\beta^t$, but when solving ...
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The bond market is a market, albeit following the lead of the central bank at the short end.
The currency market is a market.
The simplest and crudest version of the Efficient Markets hypothesis is that it is difficult to “beat a market” using a simple rule. The argument is that if such a simple rule exists, everyone would do it, causing prices to shift. (...
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Even though central banks are part of the government they are in most developed countries independent, this is similar to way how courts operate. For example US government has Judicial Branch, where the supreme court justices are part of the government and appointed by president (the same way as chairman of Fed is) but this does not mean government can order ...
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Sovereign rates in developed countries represent the credit risk-free curve. What maturity on the curve you want to choose is an analytical choice.
The natural rate is in reference to a risk-free curve, and so should align with the sovereign curve. Also, “Natural rate” is somewhat dated at this point, the preference is to use a more neutral term like r*.
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The term "entrepreneur" is usually taken to mean something more specific than talented and skilled business people. Wikipedia for example gives several definitions, including characteristics such as (with my emphases):
creation of value;
launching and running a new business;
organize the capital, talent and other resources that turn an invention ...
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If you are forecasting some special data about certain country, i guess, you can take some official forecasts made by government agencies or IMF. In case of IMF there are usually only forecast of GDP growth, while official agencies may post forecasted values for wider range of ts. Also if you have access for Bloomberg terminal in your university or work, ...
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I will give a partial answer.
I assume you mean “forecast values.” Forecasts generally come from private firms that do the forecasts, and are typically expensive. There are some surveys that are in the public domain (Philadelphia Fed Survey of Professional Forecasters). You can generate your own using a model, but quality depends uponyour model.
It is ...
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A downturn is characterized by a time period of lower economic growth or economic contraction. The term economic downturn has no formal definition and can mean many things including a recession. An economic downturn might also be used to describe periods of lower economic growth. On the other hand a recession is a specific term that is often used to describe ...
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The site has actually multiple estimates for historical UK/England GDP (as the Maddison data include data for UK as well). But based on your question I will assume you are referring to this chart:
As the chart itself states the sources for the data are Campbell, Klein, Overton & van Leeuwen(2015) and Bank of England (2020).
Summarizing a methodology and ...
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tl;dr: Your reasoning that taxes should not increase GDP by themselves as they do not constitute any new production is on right track but might not hold always. The two main reasons for that are:
If we talk about GDP as the actual statistical measure not just as a theoretical measure we run into practical problems when we try to measure it. The most ...
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this is for SRAS and AD, but I'm also going to apply this a bit fo microeconomics.. sorry for mixing, but my question applies in both ways, I believe
You are applying market equilibrium logic to the supply function. When aggregate demand shifts for some reason while the supply function is unchanged the equilibrium price will change.
If the short-run ...
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tl;dr:
R&D spending cannot stimulate economy during just by increasing long-run aggregate supply because recessions are fluctuations around the long-run aggregate supply and not necessary affected by the long-run aggregate supply.
A in which spending on R&D in principle could be more effective in fighting recessions than other spending. The ...
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Rent-seeking
Has no single agreed-upon definition (see the many definitions below).
Is a fancy synonym for "bad for society" (see especially Tullock, 1989 below).
Sometimes (but not always) refers specifically to lobbying (your example seems to be following this usage).
(In light of the above, my opinion/recommendation is that everyone should ...
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In economics, as opposed to finance, people often use discount factor and interest rate sometimes interchangeably. This is specially when defining inter-temporal preferences. The idea stems from the fact that discount rate and interest rate measures a similar kind of trade-off: current utlity/wealth vs future utility/wealth.
Interest rate, simply put, is the ...
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Overview: interest rate is a broad term, discount rate is a specific type of interest
An interest rate is a very broad term that applies to a host of assets. Interest rates are paid on mortgages, bonds, CDs, savings account, etc.
The discount rate is a specific type of interest rate that applies to the rate of interest charged to banks borrowing from a ...
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My best definition: lobbying to gain special privileges from the government.
Rent refers to the concept of economic rent. Economic rent can be thought of as profit. The amount earned beyond costs. So rent seeking is looking to make more profit and specifically make more profit without producing anymore wealth. The best way of doing this is to rig the rules ...
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What the authors seem to be doing in the footnote is imposing a condition stating that if intergenerational transfers tend to infinity (say for the case of children of billionaires) there will be no growth in wealth from human capital investment.
This condition is here to just communicate that the parent views allocation between human capital of the child ...
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I find it difficult to just say government spending follows an AR(1) process this is because you will end up with violating the "No Ponzi Game Condition" on most models including government.
To model changes in government spending you would simply have to concider different ways of shocking your model.
If you are thinking about optimality in your ...
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I remember making myself the same question when studying those models in Mankiw's book. The answer I arrived is that from the point of view of the model, the Central Bank's policy is reflected in the money supply variable, and the interest rate variable is an abstraction that represents the main interests rates in an economy that are given by the equilibrium....
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In 1929 coal production peaked and then declined because all production did as pointed by @BrianRomanchuk in his +1 answer. A coal is an intermediate good that has, for most part, value only insofar as it can be used as an energy source for other production. A Great Depression has by now relatively well established origins in stock market crash that was ...
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The usual definition of recession can be simplified to be a drop in production across the economy (although various criteria are used by different bodies to determine recession dates).
Coal production is part of GDP. Hence, it is unsurprising that it falls in a recession.
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