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Recent New Keynesian models of macroeconomy view nominal cost rigidities, rather than nominal price rigidities, as the key feature that accounts for the observed persistence in output and inflation. Kryvtsov and Midrigan (2010a,b) reassess these conclusions by combining a theory based on nominal rigidities and storable goods with direct evidence on inventories for the U.S.
: Business fluctuations and cycles; Transmission of monetary policyToTEM – the Bank of Canada’s principal projection and policy-analysis model for the Canadian economy – is extended to include inventories. In the model, firms accumulate inventories of finished goods for their role in facilitating the demand for goods.
: Business fluctuations and cycles; Economic modelsInventory investment is an important component of the Canadian business cycle. Despite its small average size – less than 1 per cent of output – it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance.
: Business fluctuations and cycles; Transmission of monetary policyUsing 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 implementationModels 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. In the model, firms use two technologies to acquire information: costly updating to full information [...]
: Business fluctuations and cycles; Inflation and prices; Transmission of monetary policyKryvtsov 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. We find that the original conclusion survives in [...]
: Business fluctuations and cycles; Transmission of monetary policyReal 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 [...]
: Business fluctuations and cycles; Transmission of monetary policyThis 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 frameworkThis 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 frameworkWe assess the implications of price indexation for estimated frequency of price adjustment in sticky price models of business cycles. These models predominantly assume that non-reoptimized prices are indexed to lagged or average inflation.
: Econometric and statistical methods; Economic models; Inflation and pricesThis 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; ProductivityInflation equals the product of two terms: an extensive margin (the fraction of items with price changes) and an intensive margin (the average size of those changes).
: Inflation and prices(with Mark Bils and Pete Klenow). Federal Reserve Bank of Minneapolis Quarterly Review, 27(1), Winter 2003, 2-9. "
Information Flows and Aggregate Persistence". November 2004.