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Introduction
Publications
Publications (39)
We study the composition of the housing stock across ownership and rental markets in a dynamic model of frictional assignment. Houses are rented or sold to heterogeneous households that sort over quality. Due to matching frictions and an increasing ownership surplus, wealthy households tend to own and lower value housing tends to be rented, even wi...
The effects of households’ indebtedness on their house selling decisions, the implications of these decisions for default and the effects of policies intended to reduce the incentive to default are studied in a dynamic model with search in the housing market and defaultable long-term mortgages. In equilibrium, both sellers’ asking prices and time-t...
en The dramatic rise in the ratio of Canada's average house price to average rent has led to speculation that there is a bubble in the Canadian housing market. Others have argued, however, that the currently high level of house prices may be rationalized by the low cost of financing, given the decline in interest rates over the last two decades. In...
Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution...
We characterize the dynamics of relative house prices, construction rates and popu-lation growth across US cities. We …nd that, in response to shocks to relative incomes, construction rates and population growth exhibit quite di¤erent short-run dynamics and that price appreciation exhibits considerable both short-run serial correlation and long-run...
The dynamics of house prices, vacancies, and construction are studied in a search model of the housing market in which both construction and the entry of buyers are de-termined in equilibrium. The theory accounts for substantial positive serial correlation in house price appreciation in the short/medium run with mean reversion in the long run, even...
Why do some sellers set prices in nominal terms that do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption. Here it is a result. We use search theory, with two consequences: prices are set in dollars since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. W...
We study optimal monetary policy in an environment in which money plays a basic role in facilitating exchange, aggregate shocks affect households asymmetrically and exchange may be conducted using either bank deposits (inside money) or fiat currency (outside money). A central bank controls the stock of outside money in the long-run and responds to...
We study the interactions among geographical mobility, unemployment, and home-ownership in an economy with heterogeneous locations,
endogenous construction, and search frictions in the markets for both labour and housing. The decision of home-owners to accept
job offers from other cities depends on how quickly they can sell their houses (i.e. the h...
Optimal monetary policy is studied in an environment in which money plays an essential role in facilitating exchange and aggregate shocks affect individual agents asymmetrically. Exchange may be conducted using either bank deposits (inside money) or fiat currency (outside money). A central monetary authority both controls the stock of outside money...
We study the responses of real and nominal prices to random flutuations in costs and money growth using a monetary search economy in which there are no costs or temporal restrictions on sellers' ability to change prices. The economy exhibits a form of price stickiness in that the price level may react incompletely to either type of shock as a resul...
The short-run non-neutrality of money and its implications for inflation dynamics are examined in a monetary search economy with heterogeneous agents. Lump-sum money injections affect the distribution of money holdings in equilibrium and thus generate short-run non-neutrality. The response of prices and inflation to shocks of this type depends on t...
We examine the implications of inflation for both price dispersion and welfare in a monetary search economy. In our economy, if the degree of buyers' incomplete information about prices is fixed, both price dispersion and real prices are increasing in inflation. As the inflation rate approaches the Friedman rule, both price dispersion and welfare l...
Many international macroeconomic models link the real exchange rate to a ratio of marginal utilities. We examine this link empirically, allowing the marginal utility of consumption to depend on government expenditure, real money balances, or external habit. We also consider two environments with incomplete asset markets; one with exogenously missin...
This paper investigates the relationship of the ``unemployment gap'' between the United States and Europe to the opening of international capital markets. The unemployment gap widened dramatically in the mid-1980's, a time period characterized also by significant increases in international capital flows--including substantial flows from Europe to t...
The observation that consumer prices are "sticky" in the sense that the nominal price level typically responds sluggishly or less than fully to short-run changes in economic fundamentals has attracted interest among economists, particularly with regard to its implications for aggregate fluctuations and the eectiveness of monetary policy. In much of...
In this paper we construct a two-country search model to determine the nominal exchange rate between two fiat monies. Our model allows agents to use any currency to trade for goods in all countries. However, search frictions restrict agents’ opportunities for instantaneous arbitrage, and hence make the nominal exchange rate determinate. The nominal...
Euro-interest rates are well-known to be persistent, as are their differentials across countries for a given maturity. The international CCAPM implies that the rates are persistent because forecasts of national consumption growth or inflation are persistent too. We examine this prediction for a panel of countries. The standard CCAPM with power util...
Cyclical movements in aggregate output, factor inputs, and productivity are all positively correlated across countries. This article proposes a model in which positive cross-country correlations of these variables result from increasing returns to the world-wide variety of intermediate goods even if technology shocks are purely country-specific. Th...
We explore a novel channel through which government spending can stimulate consumption and welfare through its effects on aggregate productivity, without directly affecting either utility or production possibilities. In the presence of monopolistic competition and increasing returns to specialization, it is shown that government spending can partly...
Dynamic factor analysis and Kalman filtering are used to construct a measure of common economic activity for the G7 countries. We find that the common fluctuations are strongly associated with movements in US investment. Common fluctuations have substantial impact on fluctuations in both productivity and investment in these countries, but very litt...
Using Kalman filtering and dynamic factor analysis, the authors decompose aggregate output, consumption, and investment for the G7 countries into factors that are (1) common across all countries and aggregates, (2) common across aggregates within a country, and (3) specific to each individual aggregate. In quarterly data for the period 1970 through...
The effects of technology shocks in a real business cycle model with monopolistic competition and increasing returns to both specialization and scale are considered. Market power per se and increasing returns due to fixed costs have no effect on the responses of aggregate variables to a technology shock relative to those exhibited by a standard, pe...
The dynamic effects of government spending are considered in a general equilibrium model with monopolistic competition and increasing returns. In the economy, changes in the level of government spending endogenously raise total factor productivity, even though the spending itself is entirely wasteful. This leads to several results which contrast wi...
Country size, measured by either population or gross domestic product (GDP), is shown to be negatively related to the variances of aggregate output, consumption and investment and positively related to the contemporaneous correlations of consumption and investment with output in a sample of fifty-six countries. These results, however, hold primaril...
Using Kalman filtering and dynamic factor analysis, we decompose fluctuations in real aggregate output, consumption, and investment for the G7 countries into factors that are (i) common across all countries and aggregates, (ii) common across aggregates within a country, and (iii) specific to each data series. In quarterly data for the period 1970-1...
An environment capable of generating both counter- and procyclical movements in markups through the interaction of opposing factors is considered. This framework can account for observed variations in the cyclical behavior of markups across industries. Technology shocks and endogenous labor supply are introduced into a model with implicit collusion...
We analyze a real business cycle (RBC) model in which aggregate production exhibits increasing returns to specialization in conjunction with imperfect competition and free entry and exit of firms over the business cycle. We show that the requirements of both high variance and high persistence in technology shocks that have been noted by critics of...
The effects of entry and exit by monopolistically competitive intermediate goods producers on equilibrium business cycles are analyzed in the presence of internal returns to scale and external returns to specialization. In the environment studied, market power and endogenous entry and exit, in themselves, have little effect on the propagation of te...
Relationships between country size (measured by both population and aggregate GDP) and standard of living (measured by per capita GDP) and the volatilities of aggregate output, consumption, and investment are investigated for a sample of 56 countries. Both characteristics are shown to be negatively related to the volatilities of the growth rates of...
Strategic interaction among oligopolistic innovators and its implications for economic growth are examined in two dynamic computable general equilibrium models. In each environment, technologies for producing a final good are such that the profits of any intermediate good producer depend on the quality of all intermediate goods. This leads to strat...
We study the responses of both nominal and real prices to random ∞uctuations in costs and money growth using a monetary search economy with no cost or temporal restrictions on sellers' ability to change prices. The economy exhibits a form of nominal price stickiness in that the price level may react incompletely or sluggishly to changes in either t...
We develop a general equilibrium framework where sellers post nominal prices that may not respond to changes in the aggregate price level - but this is an outcome, and not an assumption. Money is used as a medium of exchange, and hence it is natural that prices are posted in dollars. Due to search frictions, there is a nondegenerate price distribut...
The transmission of monetary policy is studied in an environment in which aggregate liquidity shocks affect agents asymmetrically. Agents are subject to random liquidity requirements and interact with banks which both take deposits and make loans. Banks may issue loans in excess of their deposits but face liquidity constraints due to settlement req...
This paper investigates the relationship between the unemployment gap be- tween the United States and Europe that widened dramatically in the mid- 1980's and the opening of international capital markets. This time period was also characterized by substantial increases in international capital o ws - a signican t share of which were o ws from Europe...
The relationship between unemployment and the value of owner-occupied housing is studied in an economy with heterogeneous locations and search frictions in the mar- kets for both labour and houses. Dierences in labour market conditions between cities aect the liquidity of houses (i.e. the speed with which houses may be transferred be- tween househo...
Several authors have noted positive relationships between the average rate of inflation and both the response of nominal prices to monetary and cost shocks and the variance of inflation. In this paper we study the responses of both nominal and real prices to random fluctuations in costs and money growth using a monetary economy with search friction...