The welfare state is not merely a stand-in for missing markets; it can do a whole lot more. When generations overlap and the young must borrow to make educational investments, a dynamically-efficient welfare state, by taxing the middle-aged and offering a compensatory old-age pension, can...

Empirical evidence documents substantial persistence in the adjustment process to nominal shocks. Existing open-economy models have failed either to generate interesting dynamics or found that the mechanisms are quantitatively weak. We consider the propagation of nominal shocks in a fully...