We consider the effects of inflation in a small open economy when expenditures on non-durables are more heavily financed with money than expenditures on durables. The distinctions between non-durables and durables, and asymmetric cash-in-advance constraints give rise to important dynamics.

If expenditures on non-durables are more heavily financed with money than expenditures on durables then after an increase in the inflation rate there will be capital deccumulation followed by capital accumulation. Money is superneutral in the long run.

The money in utility model is reconsidered in the presence of endogenous labour and habits. With standard assumptions about preferences and a policy rule that sets the nominal interest rate by adjusting the growth rate of money, the model exhibits superneutrality in the steady state....