Rules and discretion in public sector decision making are compared in a macroeconomic setting where there is a potential role for an active stabilization policy when the policymaker has private information about nominal shocks. The credibility of announcements about the state of nature is shown...

How will international integration affect welfare policies? This paper considers the possibilities of financing public sector activities (public consumption and social security expenses) by general (wage) taxation in an economy which becomes more integrated in international product markets. Even...

Restraints on the public budget may limit the ability of the public sector to use financial markets for the diversification of shocks. This interferes with the role of the public budget as a buffer which may provide insurance by stabilizing income and thereby private consumption. We consider...

Interest rate spreads in excess of those predicted by the uncovered interest rate parity condition are commonly observed. The pricing of exchange rate risk must be analyzed in order to understand international interest rate differentials. Moreover, it may also be important in order to evaluate...

Imperfectly competitive product markets cannot be informationally efficient as private information has strategic implications interfering with price adjustment. This is illustrated in a duopoly model with sequential price setting where private information either leads to prices not being...