The article reviews the book "Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth," by Wynne Godley and Marc Lavoie.

Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth

Internal migration in developed countries

This study investigates the pricing behaviour of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, robust across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly time-dependent pricing rules while two-thirds allow for elements of state-dependence. The majority of firms take into account past and expected economic developments in their pricing decisions. Price stickiness is mainly driven by customer relationships - explicit and implicit contracts - and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, reductions in demand are more likely to induce a price change than increases in demand.

/pdf/the-pricing-behaviour-of-firms-in-the-euro-area-new-survey-2m9vea5u4p.pdf

The Pricing Behaviour of Firms in the Euro Area: New Survey Evidence

Introduction Balance Sheets, Transaction Matrices and The Monetary Circuit The Simplest Model with Government Money Government Money with Portfolio Choice Long-Term Bonds, Capital Gains and Liquidity Preference Introducing the Open Economy A Simple Model with Private Bank Money Time, Inventories, Profits and Pricing A Model with PrivateBank Money, Inventories and Inflation A Model with both Inside and Outside Money A Growth Model Prototype Open Economy with Flexible Prices and Exchange Rates General Conclusion

/pdf/monetary-economics-an-integrated-approach-to-credit-money-nrm4wx45e3.pdf

The last decade has seen a burst of micro price studies. Many studies analyze data underlying national CPIs and PPIs. Others focus on more granular subnational grocery store data. We review these studies with an eye toward the role of price setting in business cycles. We summarize with ten stylized facts: prices change at least once a year, with temporary price discounts and product turnover often playing an important role. After excluding many short-lived prices, prices change closer to once a year. The frequency of price changes differs widely across goods, however, with more cyclical goods exhibiting greater price flexibility. The timing of price changes is little synchronized across sellers. The hazard (and size) of price changes does not increase with the age of the price. The cross-sectional distribution of price changes is thick-tailed, but contains many small price changes too. Finally, strong linkages exist between price changes and wage changes.

/pdf/microeconomic-evidence-on-price-setting-2614uxbmm5.pdf

Microeconomic Evidence on Price-Setting

To better understand price-setting behaviour in the Canadian economy, the Bank of Canada's regional offices surveyed a representative sample of 170 firms between July 2002 and March 2003. The authors discuss the reasons behind the survey, the methodology used to develop the questionnaire and conduct the interviews, and summarize the results. The study also assessed several explanations for holding prices steady despite market pressures for a change. The survey findings indicate that prices in Canada are relatively flexible and have become more flexible over the past decade. Price stickiness was generally found to originate in firms' fears of antagonizing customers or disturbing the goodwill or reputation developed with them. A detailed discussion of the results includes a consideration of their implications for monetary policy.

A Survey of the Price-Setting Behaviour of Canadian Companies

Understanding the factors that determine the migration of labour between regions is crucial for assessing the economy’s response to macroeconomic shocks and identifying policies that will encourage an efficient reallocation of labour. By examining the determinants of migration within Canada from 1991 to 2006, this article provides evidence that regional differences in employment rates and household incomes tend to increase labour migration, and that provincial borders and language differences are barriers to migration.

/pdf/explaining-canada-s-r-egional-migration-patterns-2okwce18zk.pdf

Explaining Canada's r egional Migration Patterns

The Bank of Canada conducted a Wage Setting Survey with a sample of 200 private sector firms from mid-October 2007 to May 2008. Results indicate that wage adjustments for the Canadian non-union private workforce are overwhelmingly time dependent, with a fixed duration of one year, and are clustered in the first four months of the year, suggesting that wage stickiness may not be constant over the year.

/pdf/asking-about-wages-results-from-the-bank-of-canada-s-wage-wi8cmqdoxm.pdf

Asking About Wages: Results from the Bank of Canada’s Wage Setting Survey of Canadian Companies

The pervasiveness and nature of labour market rigidities and their implications for the functioning of the macro economy and the conduct of monetary policy have been a recurrent theme in the economics literature since, at least, the work of Keynes in the 1930s. While the issue has never really gone away, there has been a renewed focus recently on the importance of labour market rigidities in shaping economic dynamics in the context of the New Keynesian model, which has become the workhorse model in modern macroeconomic analysis. A consensus has emerged in this literature that both sticky wages and sticky prices are needed to account for the persistence in aggregate output and inflation and to explain the real effects of monetary shocks that are observed in the data for a broad range of economies (see for example, Christiano, Eichenbaum and Evans (2005) and Huang and Liu (2002)). Moreover, the nature of the wage rigidity matters. For instance, Levin et al (2005), using a micro-founded macroeconomic model, show that replacing Calvo-style wage contracts with Taylor-style contracts substantially modifies the optimal monetary policy. They conclude that further research on the structure of labour markets is likely to yield substantial benefits for the design of monetary policy.

Asking About Wages: Results from the Bank of Canada's Wage Setting Survey

This paper uses Tobit models and data for union contracts to examine the extent of downward nominal-wage rigidity in Canada. To be consistent with important stylized facts, the models allow the variance of the notional wage-change distribution to be time-varying and test for menu-cost effects. The empirical results confirm the importance of using a general specification with a time-changing variance and menu-cost effects. The variance of the notional distribution fell as inflation trended downward over the sample period, and there is evidence that menu-cost effects cause some contracts to have wage freezes rather than small wage increases. Each of these features reduces the estimated effect of rigidity on wage growth. The estimated net effect of downward rigidity and menu costs in the 1990s is approximately 0.4 percentage points for the average wage change in the first year of contracts, and less than 0.1 percentage point for the average annual change over the lifetime of contracts. On balance, the evidence suggests that the long-run trade-off between inflation and the unemployment rate is close to vertical at inflation rates of 2 per cent or more if productivity growth is near the average in recent decades.

Downward Nominal-Wage Rigidity: Micro Evidence from Tobit Models

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