We look for a theoretical justification of nominal wage contracts in household diversification of risk. We assume it is more costly for households than for firms to use financial markets for this purpose. In a calibrated general equilibrium model we find from stochastic simulation that where...

Incorporating space in economic models has two important consequences. First, the hypothesis of perfect competition becomes untenable, and second, the distinction between private and public goods becomes blurred. We review arguments that lead to these conclusions and summarize recent work...

This essay presents a rigorous theory of involuntary unemployment in less developed countries based on the observation that at low consumption levels a person's overall ability to work is impaired. The theory links the incidence of involuntary unemployment in a market economy to the incidence of...

This paper explores the formation of cities through labour specialization, gains to trade, a fixed cost for the transportation network, imperfect competition between firms, and the commuting costs of consumers. The model uses a very general setting, allowing a multidimensional location space and...

A large literature has documented a significant increase in the return to college over the past 30 years. This increase is typically measured using nominal wages. I show that from 1980 to 2000, college graduates have increasingly concentrated in metropolitan areas that are characterized by a...

We present in this paper a bench-mark model for the optimal speed of transition from a state-owned to a private market economy, based on the consumption-savings decision in a closed economy. This bench-mark model abstracts from rigidities or frictions to focus on the macroeconomic conditions for...

We develop a new general equilibrium model of monopolistic competition with heterogeneous firms, variable demand elasticity and multiple asymmetric regions, in which trade integration induces wage and productivity changes. Using Canada-US interregional trade data, we structurally estimate a...

This Paper analyses the exchange rate in a ‘no-arbitrage’ or ‘real business cycle’ equilibrium model and provides empirical evidence for this model vis-a-vis PPP. Our contribution is to show, based on a generalization of the equilibrium model of exchange rates, that (i) the test equation...

We present evidence that the predictive ability of the yield spread for short-run inflation is related to its predictive ability for economic activity. In particular, an increase in the slope of the term structure predicts an increase in output growth and a decrease in inflation of equal...

We study the effect of introducing a new security, such as a non-redundant derivative, on the volatility of stock-market returns. Our analysis uses a standard, continuous time, dynamic, general-equilibrium, full-information, frictionless, Lucas endowment economy where there are two classes of...