Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This...

Societies provide institutions that are costly to use, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly...

This paper reviews the key economic issues concerning the welfare costs of inflation and deflation, with a view to shedding light on the desirable properties of the inflation process. Our review of the evidence on the overall costs of inflation and deflation indicates that such costs could be...

When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial marketsu0092 organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the...

The global financial crisis has lead to a renewed interest in discretionary fiscal stimulus. Advocates of discretionary measures emphasize that government spending can stimulate additional private spending — the Keynesian multiplier effect. Thus, we investigate whether the spending package...

Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received...