We provide a simple theory of inflation inertia in a staggered price setting framework a la Calvo (1983). Contrary to Calvo's formulation, the frequency of price changes is allowed to vary according to an evolutionary criterion. Inertia is the direct result of gradual adjustment in this...

This paper investigates frictions in the international financial and goods markets and assesses the welfare implications these frictions have. It is found that the reduction in goods trading, which results from the presence of trade costs, significantly reduces consumer welfare compared to the...

This paper examines consumption and savings dynamics in a standard model of incomplete markets. Existence of equilibrium requires the imposition of exogenous debt limits but these are often ignored because of the computational difficulties that arise in models with occasionally binding...