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James Hudson
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If Canadians are allowed to import foreign goods, including such obviously cultural goods as reading material, music and art, won't that change Canadian culture in unpredictable ways? Why isn't free trade in goods just as big a threat to Canadian TFP as open immigration? And, granting (for the sake of argument) enormous uncertainty about cultural consequences, we still have little reason to privilege the status quo (of almost free trade plus serious restrictions on immigration)--why would our uncertainty make us favor *that*, when very different restrictions *might* be *much* better? Finally, some policy of *forcibly exporting* people might well improve Canadian productivity, even in the long run (in the short run it's a no-brainer). Generally, if our uncertainty is as great as you make out, so that we are just blindly worrying about what *might possibly* happen, we (at least, the consequentialists among us) will not be able strongly to support *any* particular policy.
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Usually your thoughtful and insightful posts are too advanced for me to attempt a comment. But on this post let me offer the following: 'collateral' has two l's.
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"Given sticky prices, an exogenous decrease in the supply of money causes interest rates to rise which causes aggregate demand to fall . . . ." This is too compressed to enable me (a non-economist) to understand the New Keynesian view. I think "aggregate demand" is just spending (or is it spending on consumer goods?), in which case a fall in the quantity of money would itself reduce AD (assuming no corresponding increase in velocity). So money supply looks intrinsically relevant to AD. But how are *interest rates* supposed to be relevant? If I am a debtor, continually rolling over short-term debt, a rise in interest rates will (very likely) reduce my contribution to AD; but if I am a creditor, continually receiving interest payments, won't a rise in interest rates increase my contribution to AD, perhaps by an offsetting amount? So I understand (or, at least, think I understand) the monetarist picture, but the New Keynesian model remains completely unintuitive. Though this may run against the grain, could you please do a bit more to make the NK picture plausible?
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Nov 22, 2010