We incorporate trading fees in a long-horizon dynamic general-equilibrium model in which traders optimally and endogenously decide when and how much to trade. A full characterization of equilibrium is provided, which allows us to study the dynamics of equilibrium trades, equilibrium asset prices...

Entry into a market seems to necessitate some investment into "marketing capital" (or distribution capital: advertising, dealerships etc ... ). This form of investment has the property that, if it is unused for some time, it quickly becomes worthless. When entry into a market requires marketing...

Under different assumptions about the underlying monetary shocks, we study target zones of various widths and the effect they have on variables like the interest differential. The stochastic disturbances assumed are successively a non-zero mean random walk and a mean reverting process. The...

Dixit (1988) observed that the mathematical construct of "regulated Brownian motion" developed by Harrison (1985) had proved useful in economic models of decision-making under uncertainty. In a recent note he provided a number of methods for calculating expected discounted payoff functions based...

This paper extends the Krugman target zone model by including a realignment mechanism. Various properties of that realignment mechanism are discussed. The movement of the exchange rate is governed both by a Wiener process on fundamental and by a Poisson jump process with endogenous realignment...

In this essay, I discuss and compare two ways of modeling international capital market equilibrium: the orthodox, general-equilibrium approach and the heterodox, partial-equilibrium CAPM (Capital Asset Pricing Model) approach. The benchmark for this comparison is the model's ability to provide...

We examine the expected survival time of a unilateral exchange rate target zone, when constraints on monetary policy prevent the central bank from exclusively focusing on defending the target zone. Generally, the width of the target zone has a negligible effect on the expected survival time, and...