We document shifts in the lead‐lag properties of the U.S. business cycle since the mid‐1980s. Specifically, (1) the well‐known inverted leading indicator property of real interest rates has completely vanished; (2) labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle; and (3) the unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross‐correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement. Determining the underlying sources of these shifts in the lead‐lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research. (JEL E24, E32, E43)

In this thesis I study a major structural change in the US economy, namely, the consequences of the Great Moderation on the US economy and the operation of monetary policy.My first chapter explores a variety of empirical relationships on lead-lag properties of the US business cycle and how these relationships have changed since the onset of the Great Moderation. We emphasize four major changes in lead-lag properties. Since these relationships serve as a benchmark for many models of the business cycle, we examine if a variety of models can account for these changes. We find that they cannot.My second chapter provides an explanation for the first property in my first chapter, that the real interest rate switched from negatively leading the US business cycle to positively lagging. The explanation rests on the fact that uncertainty about the current state of the economy has become less severe since the onset of the Great Moderation. This allows policymakers to set monetary policy closer to their rule-based policy prescription under no uncertainty and reduce unintended monetary induced fluctuations.My third chapter explores business cycle asymmetry prior to and after the Great Moderation. I show that the business cycle has become more asymmetric since the onset of the Great Moderation with booms becoming smaller and busts staying relatively the same. I highlight that this type of asymmetry is consistent with a class of models which feature occasionally binding collateral constraints. i I thank my supervisor, Hashmat Khan, for his support and guidance throughout my PhD. I learned a great amount from him and always enjoyed our collaborations. He has always been supportive and enthusiastic about my work, which made my PhD a very enjoyable experience. I am looking forward to our future collaborations.I also thank my thesis committee members Chris Gunn and Lilia Karnizova. They have always provided great feedback on my work and been available for any of my questions. Both of them have always extended opportunities to put a spotlight on my work through presentations and meetings with external speakers, which I always appreciated. I am particularly thankful to Dana Galizia for his input into many of my papers, attending my seminars, and providing feedback. I was a research assistant to Dana for an extended period of time during my PhD which was very beneficial to me.I also thank the economics faculty at Carleton University. I have benefited from my interactions with them throughout my PhD and received feedback from many in my preparation for the job market.Lastly, I would like to thank all the administrative staff in the Department of Economics throughout my PhD:

This paper proposes a group-specific heterogeneous approach known as the grouped fixed-effects to examine the impact of exchange-rate regime on economic growth. The research uses a panel consisting of 151 countries from 1999-2013. Grouped heterogeneity offers a parsimonious approach to capturing unobserved heterogeneity. Countries of similar economic institutions, economic activity, population density, and so forth, tend to adjust their long-run paths for the level of income per capita at the same speed. The methodology is able to capture speed of adjustment effects to new long-run equilibriums in a parsimonious manner, which is essential to understanding factors involved in macroeconomic performance. This paper shows that studies of economic growth have different grouped patterns of time-varying heterogeneity. Taking grouped patterns of heterogeneity into account, flexible and intermediate exchange-rate regimes are growth promoting relative to fixed-exchange rate regimes. These results are robust to a variety of sensitivity tests.ii

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The monetary transmission mechanism in a New-Keynesian model with contemporary features is put to scrutiny. In contrast to Rupert and Sustek (2019), we find that the real interest rate channel is structural when the model contains empirically realistic frictions on the flow of investment. A monetary contraction (expansion) is always followed by an increase (decrease) in the real interest rate. The monetary transmission mechanism indeed operates through the real interest rate channel in this class of models.