The authors develop and test the orthogonality conditions implied by a dynamic model of the inflation tax. A distinguishing feature of the analysis is that the welfare loss from inflation, the money-demand function, and the time path of inflation are jointly derived from first principles of...

Exchange-rate management is possible only if the government pursues consistent monetary and fiscal policies. The authors constructa model in which the real consequences of exchange-rate management depend on the precise time pattern of these policies. The authors study the constraints on feasible...