In this paper, the problem of why low-purchasing power silver coins depreciated relative to high-purchasing power gold coins is examined. The standard explanation by Sargent and Velde is refuted. It is argued that the relative stability of gold was due to the demand from consumers able to detect...

The objective of this paper is to analyze the effects of alternative monetary rules on realexchange rate persistence. Using a two-country stochastic dynamic general equilibrium withnominal price stickiness and local currency pricing, we will show how the persistence ofpurchasing power parity...

This study analyzes a two-country dynamic general equilibrium model with nominal rigidities,monopolistic competition and producer currency pricing. A quadratic approximation to the utility ofthe consumers is derived and assumed as the policy objective function of the policymakers.It is shown...

When economists study incentives in organizations,the main focus has been on using monetary paymentsin exchange for performance on specific measurabledimensions. But organizations use a wide varietyof means to motivate their workers. One suchmethod which has not been studied much to date, isthe...

A striking fact about pricing is the prevalence of \sales": large temporary price cuts followedby prices returning exactly to their former levels. This paper builds a macroeconomic modelwith a rationale for sales based on firms facing customers with different price sensitivities.Even if firms...

In a country with high probability of default, higher interest rates may render the currency lessattractive if sovereign default is costly. This paper develops that intuition in a simple model andestimates the effect of changes in interest rates on the exchange rate in Brazil using data from...

We consider a linear growth model with idiosyncratic productivity shocks in whichproducers cannot commit to repay their loans. Borrowing constraints are determinedendogenously by the borrowers’ incentives to repay, assuming that defaulters lose a shareof output and are excluded from future...

This paper presents a two-country dynamic general equilibrium model with imperfectcompetition and nominal price rigidities in which productivity shocks coexist withmarkup shocks. After analyzing the features of the optimal cooperative solution, we showthat this allocation can be implemented in a...

We study identification in a class of linear rational expectations models. For any givenexactly identified model, we provide an algorithm that generates a class of equivalentmodels that have the same reduced form. We use our algorithm to show that a modelproposed by Jess Benhabib and Roger...

Recent literature on the design of optimal monetary policy has shown that deviations fromprice stability are small whenever prices are sticky. This paper reconsiders this issue byintroducing capital accumulation in the model. Optimal monetary policy in this setupimplies small deviations from...