This paper analyzes the gains from fiscal cooperation within the context of the standard two commodity real trade model. It shows how the adjustment in terms of trade is the critical factor in determining the effects of moving from a noncooperative equilibrium. In general, a noncooperative...

The interdependence between the optimal degree of wage indexation and optimal monetary policy is analyzed for a small open economy under a variety of assumptions regarding: (i) relative information available to private agents and the stabilization authority; (ii) the perceived nature of the...

This paper develops strategic monetary policies using a standard two-country macro model under flexible exchange rates. The equilibria considered include feedback Nash and feedback Stackelberg, both of which are compared to the Pareto optimal cooperative equilibrium. The optimal policies are...

This paper investigates the impact of change in the terms of trade on the economic performance of a small economy. Both the effects of unanticipated shocks and changes in the mean and variance of the probability distribution generating these disturbances are discussed. In all cases, the key...

This paper characterizes the effects of reserve requirements on financial loans in the presence of moral hazard on the lender side (i.e., the anticipation that the taxpayer will bailout lending banks if large default will occur) and sovereign risk on the borrower side. The impacts of such...

This paper analyzes the effects of an increase in the monetary growth rate within a dynamic optimizing macroeconomic model. Both the short-run and long-run effects, and therefore the adjustments along the transitional path, depend critically upon the tax structure and the firm's corresponding...

This paper analyzes the effects of monetary and fiscal policy shocks on the term structure of interest rates. The effects of temporary versus permanent, unanticipated versus anticipated, policy disturbances and the responses of long versus short, and real versus nominal, rates are contrasted....

How do capital income taxes affect household portfolio choice and growth? Wequot; approach this question within the context of a stochastic model of a small open economy inquot; which taxes on income from domestic capital (equity) and foreign bonds affect householdquot; portfolio choice, welfare...

This paper analyzes exchange market intervention in a stochastic model of a small open economy. The distinction is made between disturbances which are unanticipated and anticipated on the one hand, and those that are perceived as being transitory or permanent, on the other. The paper...

This paper analyzes the effects of changes in government expenditures on both a domestically produced and an imported good in an open economy based on intertemporal optimizing behavior. The dynamic adjustment is characterized in detail and the critical role played by the accumulating capital...