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Models with imperfect information that generate persistent monetary nonneutrality predominantly rely on assumptions leading to substantial heterogeneity of information across price-setters. This paper develops a quantitative general equilibrium model in which the degree of heterogeneity of information is determined endogenously.

Kryvtsov and Midrigan (2008) study the behavior of inventories in an economy with menu costs, fixed ordering costs and the possibility of stock-outs. This paper extends their analysis to a richer setting that is capable of more closely accounting for the dynamics of the US business cycle.

Commodity prices have increased dramatically and persistently over the past several years, followed by a sharp reversal in recent months. These large and persistent movements in commodity prices raise questions about their implications for global inflation. The process of globalization has motivated much debate over whether global factors have become more important in driving the […]

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.

Central banks continuously strive to improve how they communicate to financial markets and the public in order to increase transparency. For this reason, many central banks have begun to include guidance on the policy rate in the form of forward-looking statements in their communications. This article examines the debate over the usefulness of providing such statements from both theoretical and empirical standpoints. The evidence presented here suggests that the use of forward-looking statements in Bank of Canada communications has made the Bank more predictable, but not necessarily more transparent.

McCallum (1994a) proposes a monetary rule where policymakers have some tendency to resist rapid changes in exchange rates to explain the forward premium puzzle.

Recent events in financial markets have underlined the importance of analyzing the link between the financial health of banks and real economic activity. This paper contributes to this analysis by constructing a dynamic general equilibrium model in which the balance sheet of banks affects the propagation of shocks.

This paper studies the effects of monetary policy in an inventory theoretic model of money demand. In this model, agents keep inventories of money, despite the fact that money is dominated in rate of return by interest bearing assets, because they must pay a fixed cost to transfer funds between the asset market and the goods market.

The authors investigate the implications of house-price bubbles for the optimal inflation-target horizon using a dynamic general-equilibrium model with credit frictions, house-price bubbles, and small open-economy features. They find that, given the distribution of shocks and inflation persistence over the past 25 years, the optimal target horizon for Canada tends to be at the lower […]

How do firms adjust prices in the marketplace? Do they tend to adjust prices infrequently in response to changes in market conditions? If so, why? These remain key questions in macroeconomics, particularly for central banks that work to keep inflation low and stable.