E - Macroeconomics and Monetary Economics
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Canada and the IMF: Trailblazer or Prodigal Son?
Canada played an important role in the postwar establishment of the International Monetary Fund (IMF), yet it was also the first major member to challenge the orthodoxy of the BrettonWoods par value system by abandoning it in 1950 in favour of a floating, market-determined exchange rate. -
Inventories, Markups, and Real Rigidities in Menu Cost Models
Real rigidities that limit the responsiveness of real marginal cost to output are a key ingredient of sticky price models necessary to account for the dynamics of output and inflation. We argue here, in the spirit of Bils and Kahn (2000), that the behavior of marginal cost over the cycle is directly related to that of inventories, data on which is readily available. -
What Accounts for the U.S.-Canada Education-Premium Difference?
This paper analyzes the differences in wage ratios of university graduates to less than university graduates, the education premium, in Canada and the United States from 1980 to 2000. Both countries experienced a similar increase in the fraction of university graduates and a similar increase in skill biased technological change based on capital-embodied technological progress, but only the United States had a large increase in the education premium. -
Uninsurable Investment Risks and Capital Income Taxation
This paper studies the capital accumulation and welfare implications of reducing capital income taxation in a general equilibrium economy with uninsurable investment risks. -
Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting
Although the concept of monetary policy lag has historical roots deep in the monetary economics literature, relatively little attention has been paid to the idea. In this paper, we build on Svensson's (1997) inflation targeting framework by explicitly taking into account the lagged effect of monetary policy and characterize the optimal monetary policy reaction function both in the absence and in the presence of the zero lower bound on the nominal interest rate. -
Financial Intermediation, Liquidity and Inflation
This paper develops a search-theoretic model to study the interaction between banking and monetary policy and how this interaction affects the allocation and welfare. Regarding how banking affects the welfare costs of inflation: First, we find that, with banking, inflation generates smaller welfare costs. -
McCallum Rules, Exchange Rates, and the Term Structure of Interest Rates
McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle. -
Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System
We use a method similar to Google's PageRank procedure to rank banks in the Canadian Large Value Transfer System (LVTS). Along the way we obtain estimates of the payment processing speeds for the individual banks. -
Price Level Targeting in a Small Open Economy with Financial Frictions: Welfare Analysis
How important are the benefits of low price-level uncertainty? This paper explores the desirability of price-level path targeting in an estimated DSGE model fit to Canadian data. The policy implications are based on social welfare evaluations.