Sunday, October 2, 2016

Our brad makes a fine point out of NK

"In the basic New Keynesian model, you see, the central bank “sets the nominal interest rate” and that, combined with the inflation rate, produces the real interest rate that people face when they use their Euler equation to decide how much less (or more) than their income they should spend. "

The damn Euler equation !

" When the interest rate high, saving to spend later is expensive and so people do less of it 
  and spend more now. 

 When the interest rate is low, saving to spend later is cheap and so people do more of it 
And spend less now "

Got that?

I haven' t 
there's an equally understandable switch here 
(Move cheap where expensive sits and visa versa expensive where cheap sits )
A switch  that brad will correct 

We have income versus substitution 

And what about borrowing ?
( replace saving with borrowing and now for later  ) 

Same switchable gig ?

Brad joins the Lewis Carroll club