Credit default swaps, a useful but complex financial innovation of the 1990s, were traded over the counter before the financial crisis. Because of this infrastructure, a very opaque market emerged—and from it, the severe risk imbalances that helped fuel the crisis. Reforms are now being worked...

This paper seeks to explain the strong contemporaneous relationship between Australian and foreign output growth. It does so by adopting a more disaggregated approach than previous work, focussing in particular on consumption and investment. The theoretical frameworks of the permanent income...

This paper analyzes the value of communication in the implementation of monetary policy. The central bank is uncertain about the current state of the economy. Households and firms do not have a complete economic model of the determination of aggregate variables, including nominal interest rates,...

This paper evaluates whether an estimated, structural, small open economy model of the Canadian economy can account for the substantial influence of foreign-sourced disturbances identified in numerous reduced-form studies. The analysis shows that the benchmark model --- and a number of variants...

Real-business-cycle models rely on total factor productivity (TFP) shocks to explain the observed co-movement among consumption, investment and hours. However an emerging body of evidence identifies “investment shocks” as important drivers of business cycles. This paper shows that a...

We calibrate and simulate the model's response to `demand' shocks such as shifts in the marginal efficiency of investment, government spending shocks and news shocks. We show that investment-specific shocks can generate business cycle fluctuations that are broadly consistent with aggregate data.

This paper identifies a channel by which changes in the size and composition of government debt might generate macroeconomic instability in a standard New Keynesian model. The mechanism depends on failures of Ricardian equivalence because of learning dynamics. Under rational expectations, the...

Finally, following Smith (1993), we estimate the model using indirect inference methods. The empirical implications of the model both under learning and rational expectations are explored. Furthermore, we test the relative importance of various model frictions and learning dynamics in capturing...

Under rational expectations monetary policy is generally highly effective in stabilizing the economy. Aggregate demand management operates through the expectations hypothesis of the term structure --- anticipated movements in future short-term interest rates control current demand. This paper...