Signature Lecture and Symposium

10:00 a.m. – “Economic Effects of Monetary and Fiscal Policies”

This academic session will examine recent empirical evidence on how the effectiveness of monetary and fiscal policies depends on the nature of the economic cycle, propose possible theoretical explanations for policy state dependence and explore the implications of uninsurable idiosyncratic risks for evaluating the effects of monetary and fiscal policies.

Session chair:

• Lilia Karnizova, Associate Professor, Department of Economics, University of Ottawa

Presentations:

• “State Dependence of Monetary Policy across Business, Credit and Interest Rate Cycles (pdf, 1,200.35 KB) ”
  
  Sarah Zubairy, Associate Professor, Department of Economics, Texas A&M University and former senior analyst, Canadian economic analysis department, Bank of Canada
  
  Abstract:  We investigate how the business, credit and interest rate cycles affect the monetary transmission mechanism, using state-dependent local projection methods and data from 18 advanced economies. We exploit the time-series variation within countries, as well as cross-sectional variation across countries, to investigate this issue. We find that the impact of monetary policy shocks on output and most other macroeconomic and financial variables is smaller during periods of economic downturns, high household debt, and high interest rates. We then build a small-scale theoretical model to rationalize these facts. The model highlights the presence of collateral and debt-service constraints on household borrowing and refinancing as a potential cause for state dependence in monetary policy with respect to the business, credit, and interest rate cycles.
• “Taking off into the Wind: Unemployment Risk and State-Dependent Goverment Spending Multipliers (pdf, 727.87 KB) ”
  
  Hafedh Bouakez, Full Professor, Department of Applied Economics, HEC Montréal and former principal researcher, Bank of Canada
  
  Abstract: We propose a model with involuntary unemployment, incomplete markets, and nominal rigidity, in which the effects of government spending are state-dependent. An increase in government purchases raises aggregate demand, tightens the labour market and reduces unemployment. This, in turn, lowers unemployment risk and, thus, precautionary saving, leading to a larger response of private consumption than in a model with perfect insurance. The output multiplier is further amplified through a composition effect, as the fraction of high-consumption households in the total population increases in response to the spending shock. These features, along with the matching frictions in the labour market, generate significantly larger multipliers in recessions than in expansions. As the pool of job seekers is larger during downturns than during expansions, the concavity of the job-finding probability with respect to market tightness implies that an increase in government spending reduces unemployment risk by more in the former case than in the latter, giving rise to countercyclical multipliers.
• “Monetary and Fiscal Policies in a Heterogeneous-Agent Economy” https://onlinelibrary.wiley.com/doi/full/10.1111/caje.12337
  
  Amy Hongfei Sun, Associate Professor, RBC Fellow, Department of Economics, Queen's University
  
  Abstract: We study the effects of long‐run inflation and income taxation in an economy where households face uninsurable idiosyncratic risks. We construct a tractable competitive‐search framework that generates dispersion of prices, income and wealth. We analytically characterize the stationary equilibrium and the policy effects on individual choices. Quantitative analysis finds that monetary and fiscal policies have distinct effects on macro aggregates, such as output, savings and wealth, income and consumption inequalities. There is a hump‐shaped relationship between welfare and the respective policies. Overall, welfare is maximized by a deviation from the Friedman rule, paired with distortionary income taxation.

11:30 a.m. – “The Interaction of Fiscal and Monetary Policy in Times of Low Interest Rates”

In his presentation, Professor Blanchard will discuss why low interest rates make monetary policy less powerful and fiscal policy more powerful as well as assess possible implications of ways the two interact.

*This session includes a networking lunch.

Lecturer:

Olivier Blanchard, C. Fred Bergsten Senior Fellow at Peterson Institute for International Economics, Robert M. Solow Professor of Economics emeritus at MIT and former chief economist at the International Monetary Fund

Olivier Blanchard is an outstanding scholar whose research has shaped economic thinking of academics and policymakers around the world. He has worked on some of the most challenging macroeconomics issues, such as the costs of public debt, the role of monetary policy, the nature of speculative bubbles, determinants of unemployment, macroeconomic implications of inequality and the origin of the global financial crisis. He is the author of numerous articles and books published in French and English, including undergraduate and graduate textbooks on macroeconomics. His professional career includes various affiliations such as fellow and past council member of the Econometric Society, member of the American Academy of Arts and Sciences, research associate at the National Bureau of Economic Research and member of the Brookings Panel on Economic Activity, as well as affiliations with other prestigious advisory institutions and international organizations.

The RePEc ranking of economists includes Professor Blanchard in the top 1% of economists in the world.

2:00 p.m. – “Should We Worry about Government Budget Deficits?”

Fiscal policy experts from the private sector and Canadian and U.S. academic institutions will share their perspectives on one of society’s most contentious questions.

Moderator:

• Hafedh Bouakez, Full Professor, Department of Applied Economics, HEC Montréal, and former researcher, Bank of Canada

Panellists:

• Serge Coulombe, Emeritus Professor, Department of Economics, University of Ottawa and former senior research advisor to the chief economist at Industry Canada
• Trevin Stratton, Chief Economist, Chamber of Commerce and award-winning business economist, specializing in global and technological change
• Sarah Zubairy, Associate Professor, Department of Economics, Texas A&M University and former senior analyst, Canadian economic analysis department, Bank of Canada