- Ph.D., University of Western Ontario
- M.A., University of Western Ontario
- B.A. (Honours), Wilfrid Laurier University
- Professor, Concordia University
- Research Fellow, CIREQ
How to contact me:
Prof. Paul Gomme
Department of Economics
1455 de Maisonneuve Blvd. West
Montreal, Quebec H3G 1M8
Available in PDF
My Ideas entry.
My RePEc entry.
- A Tale of Tax Policies in Open
Economies (joint with Stephane Auray and Aurelien
Equyem), International Economic Review, Forthcoming
Abstract: Tax-based deficit reduction experiments for the U.S. and
EMU-12 are conducted using an open economy model. In welfare terms,
raising the consumption tax is the least costly, followed by the labor
income tax, then the capital income tax. Use of an open economy model
means that the incidence of the consumption tax is borne in part by
foreign producers. Among revenue-neutral tax experiments, partially
replacing the capital income tax is welfare-enhancing, although there are
short term losses. Replacing labor income tax revenue with a consumption
tax improves international competitiveness and is welfare-improving.
- ``Worker Search Effort as an Amplification Mechanism''
(with Damba Lkhagvasuren)
Journal of Monetary Economics, October 2015
Abstract: It is well known that the Diamond-Mortensen-Pissarides
model exhibits a strong trade-off between cyclical unemployment
fluctuations and the size of rents to employment. Introducing endogenous
job search effort reduces the strength of the trade-off while bringing the
model closer to the data. Ignoring worker search effort leads to a large
upward bias in the elasticity of matches with respect to vacancies.
Merging the American Time Use Survey and the Current Population Survey, new
evidence in support of procyclical search effort is presented. Average
search effort of the unemployed is subject to cyclical composition
- ``Measuring the
Welfare Costs of Inflation in a Lifecycle Model'', Journal of
Economic Dynamics and Control, August 2015, pages 132-144.
Abstract: In a neoclassical growth model with life-cycle
households in which money is held to satisfy a cash-in-advance constraint,
the optimal steady state inflation rate is absurdly high: in excess of
20%. Lump-sum, age-independent money injections twist and flatten the
lifetime profile of utility, making this profile look more like the one that
would be chosen by a planner. The cost of monetary finance of lump-sum
payments is the distortion introduced to the labor-leisure choice.
- ``Calibration and Simulation of DSGE Models'' (joint with
Damba Lkhagvassuren), in Handbook of Research Methods and Applications
in Empirical Methods in
Macroeconomics, Nigar Nasimzade and Michael Thornton, eds. (Edward
Elgar), pp. 575-592.
Data (updated August 2015): Spreadsheets, Matlab files, etc.
link. An early draft.
- ``Nominal Rigidities, Monetary
Policy and Pigou Cycles'' (with Stephane Auray and Shen Guo)
Economic Journal, 123 (568), May 2013, pages 455-473.
Abstract: Capturing the boom phase of Pigou cycles and resolving
the comovement problem requires positive sectoral comovement. This
paper addresses these observations using a two sector New Keynesian
model. Price rigidities dampen movements in the relative price of
durables following a monetary policy shock. Durables and nondurables
are estimated to be complements in utility, allowing for a resolution
of the comovement problem for modest degrees of price rigidity.
Nominal rigidities also make firms forward-looking in their pricing
behaviour which leads to relative price dynamics that generate positive
sectoral comovement in the boom phase of a Pigou cycle.
- ``Second-order approximation of dynamic models without the use of
tensors'' (with Paul Klein) Journal of Economic Dynamics and
Control 35 (4), April 2011, pages 604-615.
Abstract: Several approaches to finding the second-order
approximation to a dynamic model have been proposed recently. This paper
differs from the existing literature in that it makes use of the Magnus
and Neudecker (1999) definition of the Hessian matrix. The key result is
a linear system of equations that characterizes the second-order
coefficients. No use is made of multi-dimensional arrays or tensors, a
practical implication of which is that it is much easier to transcribe
the mathematical representation of the solution into usable computer
Matlab code is available from
Fortran 90 code for the basic routines for first-
and second-order approximations.
- ``The Return to Aggregate Capital and the Business Cycle'' (with B. Ravikumar and Peter Rupert)
Review of Economic Dynamics 14 (2), April 2011, pages 262-278.
Data (updated August 2015): Spreadsheets, Matlab files, etc.
A widely cited failing of real business cycle models is their
inability to account for the cyclical patterns of financial
variables. Perhaps less well known is the fact that the return to capital
and equity are identical in the neoclassical growth model. This paper
constructs a measure of the return to business capital for the U.S. The S&P
500 return is roughly six times more volatile than the return to
business capital. Owing to the equivalence between the returns to capital
and equity in the neoclassical growth model, papers in the real business
cycle literature that successfully account for the time series variation
in the S&P 500 return must fail to account for the time series properties
of the return to capital. A fairly basic real business cycle model
captures most of the observed variability in the return to capital. What
is needed is a theory of the stock market that breaks the equivalence
between the returns to equity and capital.
Measurement and Calibration of Macroeconomic Models'' (with Peter
Rupert) Journal of Monetary Economics 54 (2), March 2007, pages
Data (updated August 2015): Spreadsheets, Matlab files, etc.
Calibration has become a standard tool of macroeconomics. This paper
extends and refines the calibration methodology along several important
dimensions. First, accounting for home production is important both in
measuring calibration targets and in organizing the data in a
model-consistent fashion. For this reason, thinking about home production
is important even if the model under consideration does not include home
production. Second, investment-specific technological change is included
because of its strong balanced growth parameter restrictions. Third, the
measurement strategy is laid out as transparently as possible so that
others can easily replicate the underlying calculations. The data and
calculations used in this paper are available at
- ``The Business Cycle and the Life
Cycle'' (with Richard Rogerson and Peter Rupert and Randall Wright),
NBER Macro Annual 2004, pages 415-461.
Abstract: This paper explores the variation in hours of
work over the life-cycle through the lens of a model incorporating home
production. While the model successfully accounts for hours variation of
individuals late in their life-cycle, it fails to capture the high
variation in hours of work early in the life-cycle.
- ``Monetary Policy Regimes and Beliefs'' International Economic
Review (with David Andolfatto) 44 (1), February 2003, pages 1-30.
This paper investigates the role of beliefs over monetary policy in
propagating the effects of monetary policy shocks within the context of a
dynamic, stochastic general equilibrium model. In our model, monetary
policy periodically switches between low and high money growth regimes.
When individuals are unable to observe the regime directly, they
form inferences over regime-type based on historical money growth rates.
For an empirically plausible money growth process, beliefs
evolve slowly in the wake of a regime change. As a result, our model is
able to capture some of the observed persistence of real and nominal
variables following such a regime change.
- ``Home Production Meets Time-to-build'' Journal of Political
Economy (with Finn Kydland and Peter Rupert) 109 (5), October 2001,
An innovation in this paper is to introduce a time-to-build technology for
the production of market capital into a model with home production. Our main
finding is that the two anomalies that have plagued all household
production models---the positive correlation between business and household
investment, and household investment leading business investment over the
business cycle---are resolved when time-to-build is added.
- ``Shirking, Unemployment and Aggregate Fluctuations'' International
Economic Review 40 (1), February 1999, pages 3-21.
Abstract: Empirically, real wages exhibit relatively little
cyclical variation and a weak cyclical pattern. Early real business cycle
models predict, to the contrary, large, procyclical real wage
movements. Incorporating efficiency wages into a real business cycle
environment would seem promising since one prediction from the efficiency
wage literature is real wage rigidity. This paper evaluates a common
microfoundation for efficiency wages, the shirking model, with respect to
its predictions for real wages within a real business cycle-style
model. Simulations of the model reveal that it can generate dampened, but
still strongly procyclical real wage behavior.
- ``Applying Evolutionary Programming to Selected Set Partitioning
International Journal for Fuzzy Sets and Systems
(with Paul Harrald) 95 (1), April 1, 1998, pp. 67-76.
Abstract: Evolutionary programming is applied to several
instances of the set partitioning problem. Comparison is made
between the distribution of best-evolved solutions arising from
implementations of the EP with the empirical distribution of a
randomly selected trial solution.
- ``U.S. Labour Market Policy and the Canada--U.S. Unemployment Rate
Gap'' Canadian Public Policy
(with David Andolfatto and Paul Storer) 24 (S1), February 1998,
Abstract: In this paper, we investigate the extent to which
changes in U.S. labour market policy in the 1980s may have
contributed to the emergence of an unemployment rate gap between
Canada and the United States. In that decade, unemployment
insurance benefits became taxable, income tax rates fell
substantially, and various administrative changes were made that
effectively tightened unemployment insurance eligibility
requirements. These policy changes are evaluated in the context of
a computable equilibrium model of the labour market. Our estimates
suggest that all of these reforms together can account for no more
than a 0.4 percentage point decline in U.S. natural rate of
unemployment; a combined effect which accounts for 20 percent of
the unemployment rate gap.
- ``Unemployment Insurance and Labor-market Activity in Canada''
Carnegie-Rochester Conference Series on Public Policy,
(with David Andolfatto), 44, June 1996, pp. 47-82.
Abstract: In 1972, the Canadian Federal government implemented a
wide-ranging set of reforms to the nation's unemployment insurance
system. The economic impact of these reforms are evaluated in the context
of a dynamic general equilibrium model of labor-market search. A calibrated
version of the model estimates that the 1972 reforms had only a modest
impact on unemployment, but led to a significant increase in the rate of
labor-market turnover, particularly on flows into and out of the labor
force. The model also estimates that on net, the reforms likely contributed
to an increase in social welfare by reducing the level of idiosyncratic
- ``On the Cyclical Allocation of Risk,'' Journal of Economic Dynamics
and Control (with Jeremy Greenwood), 19 (1), January 1995,
Abstract: A real business cycle model with two types of
agents, workers and entrepreneurs, is simulated to see if it can
account for some stylized facts characterizing postwar U.S. business
cycle fluctuations, such as the countercyclical movement of labor's
share of income, and the acyclical behavior of real wages. It
can. There exists an economy-wide market for contingent claims. On
this market workers purchase insurance from entrepreneurs, through
optimal labor contracts, against losses in income due to business cycle
fluctuations. Insurance flows protecting workers against aggregate
cyclical risk are calculated to be less than one percent of labor
- ``Labor Turnover and the Natural Rate of Unemployment: Efficiency Wage
vs Frictional Unemployment,'' Journal of Labor Economics
(with W. Bentley MacLeod and James M. Malcomson), 12 (2), April
1994, pp. 276-315.
Abstract: Wage and unemployment responses to changes in economic
environment are compared for efficiency wage and frictional models. Changes
in aggregate demand, persistence of job-specific shocks, cost of living,
and unemployment benefits are considered. Wages and unemployment move in
the same direction in the two models, except that an upward shift in
aggregate labor demand can reduce the real wage in the efficiency wage, but
not the frictional, model. In a numberical simulation calibrated to
U.S. data, real productivity shocks in the efficiency wage model yield a
ratio of unemployment to wage variability close to that of the United
- ``Money and Growth Revisited: Measuring the Costs of
Inflation in an Endogenous Growth Model,'' Journal of Monetary
Economics, 32 (1), August 1993, pp. 51-77.
Abstract: Conventional wisdom is that if public policy can
affect the growth rate of the economy, the welfare implications of
alternative policies will be large. In this paper, a stochastic,
dynamic general equilibrium model with endogenous growth and money is
examined. In this setting, inflation lowers growth through its effect
on the return to work. However, the welfare costs of higher inflation
are modest. The endogenous labor supply is important in producing this
Federal Reserve Bank Publications
Stagnation and Returns on Capital'' (with B. Ravikumar and Peter
Rupert), Economic Synopses,
August 18, 2015.
Data: Spreadsheets, Matlab files, etc.
- ``In search
of the NAIRU'' (with David Altig), Economic Commentary, May 1,
- ``Canada's Money Targeting Experiment'', Economic
Commentary, February 1, 1998.
Labor Market Theory Tells Us about the `New Economy''', Economic
Review 1998 Quarter 3, pages 16-24.
and Economic Welfare'' (with David Andolfatto), Economic
Review, 1998 Quarter 3, pages 25-33.
- ``On the
Costs of Inflation'', Economic Commentary, May 15, 2001.
Trade and Tariffs-An Uneasy Mix'', Economic Commentary,
September 1, 2002.
Iowa Electronic Markets'', Economic Commentary, April 15, 2003.
- ``Per Capita
Income Growth and Disparity in the United States, 1929-2003'' (with
Economic Commentary, August 15, 2004.
- ``Why Policymakers Might Care about Stock Market Bubbles'',
Economic Commentary, May 15, 2005 (reprinted in
U.S. Banker, August 1 2005)
- ``Accounting for the Jobless Recoveries'',
Economic Commentary, August 1, 2005.
Working Papers and Work in Progress:
Household Revolution: Childcare, Housework, and Female Labor Force
Participation'' (with Emanuela Cardia)
Abstract: Over the twentieth century, the amount of time that
married women devoted to working in the market increased dramatically.
This paper explores the implications for the allocation of women's time
stemming from: (1) the durable goods revolution associated with the
introduction of new technologies, from running water to modern appliances,
that significantly reduced the time demands of home production; (2) the
increase in the relative wage of women, from roughly 50% to over 80%; and
(3) changes in childcare requirements associated with changes in fertility
patterns. To do so, we construct a life-cycle model with home production
and childcare constraints. The parameters of the childcare production
function are chosen to match micro evidence from U.S. time use data. We
find that the increase in the relative wage of women is the most important
explanation of the increase in married women's market work time over the
twentieth century. Increases in relative wages and decreases in fertility
can also explain a large part of the observed decrease in housework. The
model find that the the declining price of durable goods has an appreciable
effect only since 1980.
- ``Estimating Canadian Monetary Policy Regimes''
(with David Andolfatto)
Abstract: Andolfatto and Gomme (2003) find evidence that Canadian
monetary policy appears to alternate between high and low money growth
rate regimes, and that private-sector belief formation over these
unobserved regimes could induce significant persistence in the
propagation of monetary policy shocks. In this paper, we examine the
sensitivity of these conclusions by re-estimating the data allowing for
the possibility of multiple regimes. In doing so, we find evidence of
three (rather than two) distinct monetary policy regimes. In particular,
we find that one policy regime is characterized by high money growth with
moderate variability. The other two policy regimes are characterized by a
common low money growth rate; they are distinguished primarily by their
variability (high and low). A simulation exercise based on our
three-regime model reveals an improvement in accounting for the behavior
of the Canadian economy over some episodes; notably, the sharp increase
in interest rates and the curtailment of economic activity in the early
- ``Human Capital Theory and the Life-Cycle Pattern of Learning and
Earning, Income and Wealth'' (with David Andolfatto and Christopher
Abstract: Life-cycle patterns of income, earnings, consumption, labor supply, and
wealth vary systematically across educational groups. Human capital theory
explains different educational choices in terms of parameters describing
tastes and technology. We ask whether differences in these parameters are
also consistent with other patterns of behavior. Our preliminary findings
suggest that no single form of parameter heterogeneity will be able to
account for the joint behavior of life-cycle choices.
- ``Optimal Taxation in an Endogenous Growth Model with Government
Supplied Educational Capital'' (available as a
Abstract: Government expenditures are large when measured
as a proportion of government spending or relative to GNP. This
fact is incorporated into an endogenous growth model in which
education produces new human capital. Capital in the education
sector is provided by government and financed by distortionary
taxes. To incorporate property taxes, an important source of
revenues for schooling, household production is incorporated into
the model with household capital representing the property tax
base. The model is calibrated to match key first moment properties
of the post-war U.S. economy. Different mixes of labor income,
capital income and property taxes are analyzed with regard to their
consequences for the welfare of the representative household. In
general, taxes have two opposing effects: higher taxes tend to
retard growth and reduce welfare; however, when used to finance
educational expenditures, taxes promote human capital accumulation
and so growth which is welfare-enhancing.
- ``Evolutionary Programming as a Solution
Technique for the Bellman Equation''
Abstract: Evolutionary programming is a stochastic
optimization procedure which has proved useful in optimizing
difficult functions. It is shown that Evolutionary programming can
be used to solve the Bellman equation problem with a high degree of
accuracy and substantially less CPU time than Bellman equation
iteration. Future applications will focus on sometimes binding
constraints - a class of problem for which standard solutions
techniques are not applicable.
- ``Anticipated Inflation in a Neoclassical Growth Model with a
Abstract: Sufficient conditions for the long run
non-superneutrality of money are established in a neoclassical
growth model with a labor-leisure choice. Money is held to satisfy
a cash-in-advance constraint on consumption purchases. Production
requires capital and labor while period utility depends on
consumption and leisure. The most important sufficient conditions
for increased money growth to reduce output in the long run are:
(1) the crosspartial derivative of the production function is
non-negative, and (2) the crosspartial derivative of the period
utility function is non-negative.
Data for Gomme and Rupert (2007), Gomme and Lkhagvasuren (2013) and Gomme,
Ravikumar and Rupert (2011, 2015) (updated August 2015): Spreadsheets, Matlab files, etc.
Fortran 90 code for the basic routines for first-
and second-order approximations (Gomme and Klein, 2011)
Scilab Code for Gomme, Rogerson, Rupert and
Scilab Code for Gomme, Kydland and Rupert
Paul Gomme |
| Revised September 4, 2015