Douglas D. Purvis

Investment and employment decisions

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The Specification and Influence of Goods and Factor Markets in Open Economy Macroeconomic Models

This paper explores the structure and specification of goods and factor markets in open economy macro models. Simple benchmark models are set up which abstract entirely from market structure and focus on goods market structure. These real and monetary factors are combined in a full employment context, then in an unemployment/ variable output context. We consider some applications of specie-flow mechanisms and the purchasing power parity doctrine.

Sectoral Shocks in a Dependent Economy: Long-run Adjustment and Short-run Accommodation

This paper examines the allocation and stabilization consequences of a resource boom in a small open economy. Both the intersectoral allocation of capital and the price of non-traded goods adjust sluggishly; in contrast the nominal exchange rate adjusts instantaneously to ensure that the conditions for uncovered interest parity in the presence of rational exchange rate expectations are always met. The ability of monetary policy to stabilize the economy is examined, and it is shown that, even when intervention is justified in principle, policy errors which arise from confusing real and monetary shocks may worsen macroeconomic performance.

Unemployment Insurance and Unemployment Dynamics

One of the puzzling features of the recent behavior of the Canadian unemployment rate is its persistence in the presence of a sustained expansion in real national income. Neither deficient aggregate demand nor a once-for-all, supply-side-induced increase in the natural rate provides a convincing explanation of this phenomenon. This paper presents a model that explains how aspects of unemployment insurance in Canada will cause persistence: unemployment will be highly serially correlated even if output is not. The authors document the increased persistence of the unemployment rate since 1977 and show that the model accounts for much of this phenomenon.

Monetarism: A Review

Review of Jerome Stein, ed., Monetarism (Amsterdam: North Holland, 1976). This volume is composed of the proceedings of a conference sponsored by the National Science Foundation and held at Brown University in November 1974. In preparing this review, I have benefited from many discussions with colleagues and students. I would particularly like to acknowledge, without implicating, helpful comments from Neil Bruce, Peter Howitt, David Laidler, Richard Lipsey, Allan Meltzer and the editorial staff of this JOURNAL.

The Neoclassical Theory of the Firm: A Note on the Production and Investment Decisions

The neoclassical theory of the firm has developed along two distinct lines. The static theory develops the implications of profit maximization for the determination of factor demands, output, and equilibrium firm size. The dynamic theory uses intertemporal optimization to analyze the investment cum growth decisions of the firm. The paper presents a simple exposition of the latter theory using the familiar isoquant diagram. Increasing, decreasing and constant returns to scale, and external and internal adjustment costs are studied. Of principal interest is the close relationship between factors determining the firms equilibrium size and those determining it growth rate.

Incomplete information and the equilibrium determination of the forward exchange rate

Abstract In the present paper we embed the forward exchange rate in an equilibrium macroeconomic model incorporating rational expectations and portfolio balance, and in which the spot exchange rate, the forward exchange rate, the expected future spot rate, and the domestic interest rate are determined simultaneously. The purpose is to examine the impact of alternative macroeconomic disturbances on the spot and forward exchange rates and on the bias in the forward rate as a predictor of future spot rates. The rational expectations hypothesis plays a key role in the analysis; alternative assumptions made about the information available to agents in the economy are shown to have rather dramatic consequences on the answers obtained.