Waterloo economics series | 1995

# 95-002 -- David Andolfatto and Paul Gomme

Unemployment insurance, labour market dynamics, and social welfare (PDF not available)

Abstract

In the U.S. economy, real output growth is forecastable with its own lag and the lagged consumption--output ratio. With technological progress modeled as a random walk, standard real-business-cycle (RBC) models fail to replicate this fact: these models generate equilibrium output dynamics that largely inherit the properties of the assumed impulse dynamics, leading some researchers to question the empirical relevance of technology shocks for generating business cycle dynamics.

In this paper, we develop a model economy that exhibits endogenous stochastic growth with aggregate fluctuations driven by technology shocks that are absorbed with some lag, reflecting the costly and time--consuming nature of innovation and diffusion. Our purpose is to compare the resulting business cycle dynamics with those predicted by standard RBC models, which implicitly assume the instantaneous diffusion of new technology. Unlike the standard RBC model, the environment studied here generates business cycle dynamics that better resemble observed patterns.

Endogenous Technological change, growth, and aggregate fluctuations (PDF not available)

Abstract

The paper develops a model of the economy in which the development and spread of technological innovations is endogenous. Production and learning activities on the part of competitive firms interact with housefold decisions to generate growth and fluctuations in aggregate economic activity. The model's structural parameters are estimated by maximum likelihood; the extent to which such a framework can be used to interpret macroeconomic data is assessed.

# 95-005 -- James R. Melvin

History and measurement in the service sector: a review (PDF not available)

Abstract

# 95-006 -- James R. Melvin

Services in an information economy (PDF not available)

# 95-007 -- Wai-Ming Ho

Imperfect information, money, and economic growth (PDF not available)

Abstract

This paper develops an endogenous growth model with financial market imperfections in order to study the effects of money on economic growth and to examine the role of informational imperfections in the determination of the equilibrium growth path. It is found that the economy grows slower when there is imperfect information. Changes in money growth have qualitatively similar effects on the economies with and without private information. However, the economy with private information will be less responsive to monetary shocks. This latter result contradicts the popular view that informational imperfections in credit markets or borrowing constraints tend to amplify the impact of policy intervention.

# 95-008 -- Robert A. Amano and Tony S. Wirjanto

Intertemporal substitutions, imports and the permanent-income (PDF not available)

Abstract

We examine the importance of intertemporal substitution in U.S. import consumption using a model of permanent income that allows for random preference shocks and additive separability. The latter feature allows us to take two estimation approaches. In the first approach, we show that there is a cointegrating restriction imposed by the first-order conditions of the model. Given the assumed preference specification, this restriction leads to a linear cointegrating relation between imports consumption, domestic goods consumption and their relative price that is supported by the data. Using this restriction to recover the preference parameters, we estimate the intertemporal elasticity of imports and domestic goods consumption. In the second approach, we estimate the Euler equations using generalized method of moments. For this estimation procedure to be valid, however, we must place some restrictive assumptions on the model that are not required for the first estimation approach. Thus, the two different approaches allow us to assess the severity of these assumptions often imposed in the literature.

Journal of Economic Literature (JEL) classification

F10, E21, C22

# 95-009 -- Stanley W. Kardasz and Kenneth R. Stollery

International competitiveness and price formation in Canadian manufacturing industries (PDF not available)

Abstract

This paper examines the responsiveness of the prices of domestic and imported goods in the domestic market to changes in the costs of both goods. Using time-series data for a broad sample of Canadian manufacturing industries, it is found that domestic cost changes have small price effects in industries where domestic producers are internationally cost competitive, concentration is low and import shares are high, whereas import cost changes have large price effects in industries with these characteristics.