E - Macroeconomics and Monetary Economics

• Common Trends and Common Cycles in Canadian Sectoral Output

  Staff Working Paper 2003-44 Francisco Barillas, Christoph Schleicher

  The authors examine evidence of long- and short-run co-movement in Canadian sectoral output data. Their framework builds on a vector-error-correction representation that allows them to test for and compute full-information maximum-likelihood estimates of models with codependent cycle restrictions.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Econometric and statistical methods JEL Code(s): C, C1, C15, C2, C22, C3, C32, E, E3, E32

• Why Does Private Consumption Rise After a Government Spending Shock?

  Staff Working Paper 2003-43 Hafedh Bouakez, Nooman Rebei

  Recent empirical evidence suggests that private consumption is crowded-in by government spending. This outcome violates existing macroeconomic theory, according to which the negative wealth effect brought about by a rise in public expenditure should decrease consumption.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Fiscal policy JEL Code(s): E, E3, E32, E6, E62

• Anatomy of a Twin Crisis

  Staff Working Paper 2003-41 Raphael Solomon

  The author presents a model of a twin crisis, in which foreign and domestic residents play a banking game. Both "honest" and run equilibria of the post-deposit subgame exist; some run equilibria lead to a currency crisis, as agents convert domestic currency to foreign currency.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial institutions JEL Code(s): E, E5, E58, F, F3, F30, G, G2, G21

• Poignée de main invisible et persistance des cycles économiques : une revue de la littérature

  Staff Working Paper 2003-40 Christian Calmès

  The author explains how self-enforcing labour contracts can enhance the performance of macroeconomic models. He exposes the benefits of using these dynamic contracts to account for some puzzling macroeconomic facts regarding the dynamics and persistence of employment, consumption and output.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models JEL Code(s): E, E1, E12, E4, E49, J, J3, J30, J31, J4, J41

• Alternative Targeting Regimes, Transmission Lags, and the Exchange Rate Channel

  Staff Working Paper 2003-39 Jean-Paul Lam

  Using a closed-economy model, Jensen (2002) and Walsh (2003) have, respectively, shown that a policy regime that optimally targets nominal income growth (NIT) or the change in the output gap (SLT) outperforms a regime that targets inflation, because NIT and SLT induce more inertia in the actions of the central bank, effectively replicating the outcome obtained under precommitment. The author obtains a very different result when the analysis is extended to open-economy models.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Monetary policy framework JEL Code(s): E, E5, E52, E58

• Simple Monetary Policy Rules in an Open-Economy, Limited-Participation Model

  Staff Working Paper 2003-38 Scott Hendry, Wai-Ming Ho, Kevin Moran

  The authors assess the stabilization properties of simple monetary policy rules within the context of a small open-economy model constructed around the limited-participation assumption and calibrated to salient features of the Canadian economy. By relying on limited participation as the main nominal friction that affects the artificial economy, the authors provide an important check of the robustness of the results obtained using alternative environments in the literature on monetary policy rules, most notably the now-standard "New Keynesian" paradigm that emphasizes rigidities in the price-setting mechanism.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy framework, Monetary policy transmission JEL Code(s): E, E4, E44, E5, E52, E58, F, F3, F31