The theoretical determinants of maximum sustainable government debt are investigated using Diamond's overlapping generations model. A level of debt is defined to be 'sustainable' if a steady state with non-degenerate values of economic variables exists. We show that a maximum sustainable level...

This paper argues that a stable broad money demand for the euro area over the period 1980-2011 can be obtained by modelling cross border international portfolio allocation. As a consequence, model-based excess liquidity measures, namely the difference between actual M3 growth (net of the...

As a companion to a previous paper, monetary and fiscal policy are analyzed in (a) a small open economy and (b) a two-country world, where in addition to a fixed wage causing unemployment, countries now produce specialized products whose prices are fixed, causing excess supply. There are two...

We study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages. As in John Taylor’s approach, the money wage is fixed for two periods, but in our model it is also chosen according to intertemporal optimization, as are consumption and...

A monetary overlapping generations model with oligopolistic imperfect competition is constructed. In general, output and employment are below their full employment levels. Three alternative expectations hypotheses are used - 'adaptive', 'monetarist' and 'pure rational' - all of which ensure no...

A stochastic two-period model of a small open economy with optimizing consumption and portfolio choice is constructed. Exchange rate risk means domestic-currency bonds are imperfect substitutes for foreign-currency bonds. Expectations are rational, i.e. subjective probability distributions equal...