A Dornbusch model with overlapping multi-period wage contracts and rational expectations is specified and estimated with Canadian and U.S. data. Estimated wage-price dynamics imply a typical contract length of about six quarters. Simulations indicate: 1) the exchange rate overshoots following a...

This paper reconsiders McCallum's minimal-state-variable technique for selecting a single, bubble-free solution to a rational expectations model. I argue this technique bears a strong structural similarity to the conventional stability conditions, and when these approaches fail to yield a unique...

These notes review the theory of linear differential and difference equations at the first-year graduate economics student level. The mathematical trick of transforming a system into canonical form, which I take to be diagonal, is applied to continuous and discrete time systems and perfect...

We examine the credibility of disinflation policy in an economy with staggered wage contracts. The dynamic inconsistency of the government's optimal plan is the source of the credibility problem. If the government cannot commit to future actions, then the optimal plan is no credible. We argue...

The relations between Canadian and U.S. prices and output are compared during fixed and flexible exchange rate regimes. Correlations are high at all frequencies for all three regimes. The results suggest that the insulation potential of a flexible exchange rate is weak and/or that the Bank of...