Mankiw 6e. Experience it.
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Chapter 24: Measuring the Cost of Living

Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

June 3

The Mistake of 1937

Gauti Eggertsson notes that policymakers in 1937 confused a rise in the relative prices of commodities for fundamental inflation. The result was bad policy decisions. He wonders if modern policymakers will make the same mistake.

Textbook References:

Pages 514-520 “The Consumer Price Index”
Pages 664-665 “Inflationary Threats”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

May 7

I Agree with Paul Krugman

To maximize economic stability, central banks should use a price index that gives substantial weight to the level of nominal wages.

Textbook References:

Chapter 24 “Measuring the Cost of Living”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

April 16

My Talk From Yesterday

A video shows Mankiw's talk at the University of Cincinnati. He provides a brief history of macroeconomics, discusses current monetary and fiscal policy, and discusses the long-run fiscal situation.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 539-541 “Real and Nominal Interest Rates”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

December 21

Advances in Inflation Measurement

The Billion Prices Project offers an alternative to the Consumer Price Index.

Textbook References:

Pages 530-537 “The Consumer Price Index”

December 22

The Price of Christmas

The price index for the gifts in "The Twelve Days of Christmas" rose 1.8 percent this year.

Textbook References:

Pages 530-537 “The Consumer Price Index”

June 18

Deflation?

A graph shows that there has been deflation over the past year, as measured by the CPI. Yet when measured by the median CPI, there has been low inflation.

Textbook References:

Chapter 24 “Measuring the Cost of Living”
Chapter 30 “Money Growth and Inflation”
Pages 746-9 “Why the Aggregate-Demand Curve Slopes Downward”


May 26

More on Negative Interest Rates

Glen Rudebusch of the San Francisco Fed says that to be consistent with the Fed’s past policy, the interest rate would have to be negative five percent by the end of this year.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


May 11

Negative Interest Rates

The city of Prien am Chiemsee in Bavaria, Germany, employs a local currency that implements one of Mankiw’s suggestions for creating negative interest rates.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


May 7

More on Negative Interest Rates

Former central banker Willem Buiter endorses the idea of negative interest rates.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?

Chapter 24: Measuring the Cost of Living
Archived Posts

 

Apr. 28

Fed Staff goes Negative

A Fed report says that the ideal interest rate now would be negative 5 percent.

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Apr. 27

Instantaneous Deflation as a Macro Solution

Robert Murphy responds to Mankiw’s argument that we need negative interest rates. He points out that Mankiw’s argument for future inflation is logically equivalent to an instantaneous collapse of prices. Mankiw points out that if prices are sticky, that can’t happen.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 755-760 “Why the Aggregate-Supply Curve Slopes Upward in the Short Run”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Apr. 22

More on Negative Interest Rates

Mankiw continues the discussion he started on April 18 about the usefulness of negative interest rates.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”


Apr. 19

Observations on Negative Interest Rates

Mankiw responds to comments about his April 18 post in favor of negative interest rates.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Apr. 18

Going Negative

Mankiw argues that the Fed should consider negative interest rates, possibly by creating inflation.

Textbook References:

Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 6

Wage Deflation?

Mankiw responds to Krugman’s claim that wages are falling.

Textbook References:

Chapter 18 “The Markets for the Factors of Production”
Pages 537-541 “Correcting Economic Variables for the Effects of Inflation

Dec. 2

Real Interest Rates Plunge!

Data from the U.S.Treasury suggest that the real interest fell two points in a few days. Mankiw says it’s a figment of how the data are constructed.

Textbook Reference:

Pages 539- 541 “Real and Nominal Interest Rates”