The Great Depression in Canada
and the United States: A Neoclassical Analysis (pdf)
Joint with Pedro Amaral(University of Minnesota).(Review of Economic Dynamics, January 2002, 45-72.).
ABSTRACT: Canada suffered a major depression from 1929 to 1939. In terms of output it was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, while in the United States TFP had recovered by 1937. We find that the neoclassical growth model, with TFP treated as exogenous, can account for over half of the decline in output relative to trend in Canada. In contrast, we find that conventional explanations for the Great Depression - monetary shocks, terms of trade shocks and labor market and competition policies – do not work for Canada.
Joint with Benjamin Bridgman and Igor Livshits (University of Minnesota).
ABSTRACT: This paper formalizes stories linking vested interests to
the non-adoption of superior technologies. Coalitions of workers skilled
in the operation of incumbent technologies lobby government for a prohibition
on the adoption of better technologies. For reasonable parameter values,
we find that the model generates significant levels of protection in equilibrium.
The model also generates protection cycles that lead to TFP growth cycles.
Protection has a level effect on per capita output. ``Productivity slowdowns''
lead to increased levels of protection. The level of protection is increasing
in the venality of governments. Increased population growth rates increase
the value of protection, and can lead to an increase in the level of protection.
Joint with Thor Koeppl (University of Minnesota). Federal Reserve Bank of Minneapolis Working Paper 608.
ABSTRACT: Banks have historically provided mutual insurance against
asset risk, where the insurance arrangement itself was characterized by
limited enforcement. This paper shows that a non-trivial interaction between
asset and liquidity risk plays a crucial role in shaping optimal banking
arrangements in the presence of limited enforcement. We find that liquidity
shocks are essential for the provision of insurance against asset shocks,
as they mitigate interbank enforcement problems. These enforcement problems
generate endogenous aggregate uncertainty as investment allocations depend
upon the joint distribution of shocks. Paradoxically, a negative correlation
between liquidity and asset shocks ameliorates enforcement limitations
and facilitates interbank cooperation.
Consumer Bankruptcy: A Fresh Start
Joint with Igor
Livshits (University of Western Ontario) and Michele Tertilt (University
of Minnesota).
Federal Reserve Bank of Minneapolis Working Paper 617.
ABSTRACT: This paper quantitatively analyzes the welfare implications
of different consumer bankruptcy rules. We look at a dynamic life
cycle model where households face idiosyncratic uncertainty. Bankruptcy
rules vary along two dimensions: whether discharge of debt is granted to
borrowers on demand (fresh start) and the fraction of income garnished
from defaulters. We find that the welfare comparison depends critically
upon the nature and magnitude of income and expenses uncertainty.
In particular, the larger are expense shocks – unanticipated bills such
as medical expenses, divorce costs or lawsuits – the more desirable is
a bankruptcy system that allows for the discharge of debt. Our findings
have important implications for the current policy debate on U.S. consumer
bankruptcy law, since proponents of a stricter bankruptcy code have largely
ignored the role of expense uncertainty.
Distribution Costs, Trade and Relative Prices
Updated version coming soon.
Tables.pdf
Figures.pdf
ABSTRACT: Is the distribution sector important for understanding international
business cycles? To
answer this question, we introduce a distribution sector into an international
business cycle model
with sector specific capital and convex adjustment costs. Final goods
are produced using traded
intermediate goods and non-traded distribution services. We find that
the distribution sector
limits cross-country consumption smoothing. For reasonable parameter
values, the cross country
consumption and output correlations predicted by the model are similar.
The relative volatility of
the real exchange rate, the terms of trade and net exports are similar
to those observed in the
data. However, the absolute volatility of these variables is less than
that observed
in the data.