This paper investigates price determination in a decentralized economy in which buyers' valuations are stochastic and unobservable. In such a market, each buyer's reservation utility depends both on the prevailing price and on the price he actually encounters. The buyer's willingness to trade is...

This paper explores the link between fiscal-monetary policy interaction and deflation. The key feature of this paper is that the central bank's balance sheet is separated from the government's budget constraint. As a result, government bonds are held entirely by households, and money is supplied...

We explore the implications of adopting a Taylor-type interest-rate rule in a simple monetary growth model in which budget deficits are financed partly by unbacked government debt. To ensure uniqueness of the steady-state equilibrium, monetary policy cannot be either too "active" or too...

In this paper, we study a dynamic Gaussian financial market model in which the traders form higher-order expectations about the fundamental value of a single risky asset. Rational uninformed traders are introduced into an otherwise standard differential information economy to investigate the...

We explore the long-run implications of adopting a Taylor-type interest-rate rule in a simple monetary growth model in which budget deficits are financed partly by unbacked government debt. Because monetary policy is accommodative only when it is passive, the Taylor principle, which requires...

Governments, especially in developing countries, routinely provide large-scale public employment programs. This paper studies such programs and their impact on unemployment rates, capital accumulation, and the process of development. An overlapping generations model with production is studied...