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...

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...

Monetary and fiscal policy are introduced into a version of Hart's "Keynesian features" model of imperfect competition. Individuals' labour supply is exogenous, so, under perfect competition, output is always at the exogenous "full employment" level. Imperfect competition takes the form of...

This survey outlines the general lessons of the recent literature on imperfectly competitive macroeconomies for the theory of monetary and fiscal policy. A general framework is presented which encompasses most of the existing literature. Although money is of itself neutral in these models, the...

We re-examine optimal monetary policy in a dynamic general equilibrium model where open market operations are the only policy instrument. The government optimizes purely over private agents’ welfare. We use a money-in-the-utility-function approach with a welfare cost of ‘current’...