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A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries.
: Financial system regulation and policies; Transmission of monetary policyFrom 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household's marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially.
: Economic models; Labour markets; Potential outputVarious papers have suggested that Price-Level targeting is a welfare improving policy relative to Inflation targeting. From a practical standpoint, this raises an important yet unanswered question: What is the optimal price index to target?
: Monetary policy frameworkUsing the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period.
: Monetary policy framework; Monetary policy implementationThis 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.
: Labour markets; ProductivityThis paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting.
: Credibility; Monetary policy frameworkWhy do employed persons in large firms earn more than employed persons in small firms, even after controlling for observable characteristics? Complementary to previous results, this paper proposes a mechanism that gives an answer to this question.
: Economic models; Labour markets; ProductivityThis paper analyses the Canadian economy for the post 1960 period. It uses an accounting procedure developed in Chari, Kehoe, and McGrattan (2006). The procedure identifies accounting factors that help align the predictions of the neoclassical growth model with macroeconomic variables observed in the data.
: Labour markets; Potential output; ProductivityThis paper measures the welfare gains of switching from inflation-targeting to price-level targeting under imperfect credibility. Vestin (2006) shows that when the monetary authority cannot commit to future policy, price-level targeting yields higher welfare than inflation targeting.
: Credibility; Monetary policy frameworkThis paper examines the role of monetary policy in an environment with aggregate risk and incomplete markets. In a two-period overlapping-generations model with aggregate uncertainty and nominal bonds, optimal monetary policy attains the ex-ante Pareto optimal allocation.
: Monetary policy frameworkThis paper asks: What is the effect of government policy on output and inequality in an environment with education and labor-supply decisions? The answer is given in a general equilibrium model, consistent with the post 1960s facts on male wage inequality and labor supply in the U.S. In the model, education and labor-supply decisions depend on progressive income taxation, the education system, the social security system, and technology-driven wage differentials.
: Labour markets; Potential output; ProductivityFrom 1870 to 2000, the workweek length of employed persons decreased by 41 per cent in industrialized countries.
: Economic models; Labour markets; Productivity