We study economies where improving the quality of institutions -- modelled as improving contract enforcement -- requires resources, but enables trade that raises output by reducing the dispersion of marginal products of capital. We find that in this type of environment it is optimal to combine...

We present a micro-founded search-theoretical model of money in which agents are subject to idiosyncratic liquidity shocks as well as aggregate productivity and monetary shocks. Monetary policy has redistributive effects and persistent effects on output and prices: aggregate shocks will...