Gulnara Nolan

From the Great Depression to the contemporary days: is the reallocation of resources a solution?

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Former Governor of the Bank of England, Mervyn King is suggesting that “Economics Needs a Post-Crash Revolution” in a seeming admission that current frameworks don’t work in a world of radical uncertainty and necessary reallocation.

Is the former BOE governor and academic icon correct, or is this an unfair critique of the mainstream?  As a summary, I have two issues with his argument:

  1. Reallocation does not have anything to do with “average demand”, which is predominantly a monetary policy issue,
  2. If excessive reallocation is necessary and requires government assistance, where are the “high return” industries that need reallocation to them?

Let me explain.

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Gulnara Nolan

Explaining labour-income share and constant elasticity of substitution

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When we model production functions in macroeconomics, the broad ingredients we have for output growth are labour and capital – our factors of production. Both of these factors need to be remunerated, which raises the question of what share of income goes to each.

This is the question of factor income shares.

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Gulnara Nolan

How does nominal income targeting work?

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Thanks to Dr. Kirdan Lees for prompting me to write today’s post. Today’s topic of discussion is nominal income targeting.

What is nominal income targeting? 

Nominal income targeting is usually viewed as an alternative monetary strategy to inflation targeting, and has never explicitly been applied in practice by any central bank. However, there is an overwhelming amount of literature discussing this monetary policy tool and how it compares to the flexible (inflation) targeting.

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Gulnara Nolan

When to run the economy hot?

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Former Fed Chair Janet Yellen has recently suggested it is a good time to run the US economy hot (in the short-run) underpinned by the argument that the further fall in unemployment rate didn’t drag the inflation up.

The justification behind this is that the Phillips curve appears to have become quite flat.  As a result, stronger demand need not drive up inflation by much – suggesting we have a situation where, even with relatively low unemployment, inflation expectations are strongly anchored. 

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Gulnara Nolan

Efficacy of monetary policy under uncertainty

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In this post, I am going to talk about the efficacy of monetary policy in the face of uncertainty. 

In an earlier post, I have talked about uncertainty reducing interest rate sensitivity – but does that mean that the efficacy of monetary policy has declined? No, as ultimately, we need to think about how any investment response translates into a change in output!

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Gulnara Nolan

Six methods of unconventional monetary policy

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In a recent response to questions, The Reserve Bank of Australia has listed six options of unconventional monetary policy that is considered in an event of extreme policy implementation. Westpac economists have also talked about potential unconventional monetary policy tools applicable to the NZ case here – this is worth a read, but is a different list!

In this post I would like to outline the RBA’s options and hopefully make them easy to understand.

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