Joel Wagner is a Senior Economist in the Monetary Policy and Financial Studies Division of the Canadian Economic Analysis (CEA) Department at the Bank of Canada. His current research interests include macroeconomics, with a specific focus on how technology and innovation drive both business cycle volatility and economic growth. At the bank of Canada, he has been involved in understanding the impact downward nominal wage rigidity has on a workers wage-setting decision. Future research will continue along this path as well as focus on the impact innovations in financial technology have on banking sector.
The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession.
Two approaches have been taken in the literature to evaluate the relative importance of news shocks as a source of business cycle volatility. The first is an empirical approach that performs a structural vector autoregression to assess the relative importance of news shocks, while the second is a structural-model-based approach.
This paper takes a full-information model-based approach to evaluate the link between investment-specific technology and the inverse of the relative price of investment. The two-sector model presented includes monopolistic competition where firms can vary the markup charged on their product depending on the number of firms competing.