We explore the role of monetary policy in the aftermath of a financial crisis. We develop a small open economy model with limited participation of households in a financial intermediary that provides liquidity to satisfy firms' working capital needs. Firms require two forms of working capital:...

In the wake of the 1997-98 financial crises, interest rates in Asia were raised immediately, and then reduced sharply. We describe an environment in which this is the optimal monetary policy. The optimality of the immediate rise in the interest rate is an example of the theory of the second...

A wide range of motives for holding inventories has been identified in the literature. These include the desire to smooth production in the face of fluctuating demand, the desire to avoid stockouts, and the desire to shift production into periods when costs are relatively low. Most of the...