We study economies where government currency and electronic money, drawn from interest bearing deposits in private financial intermediary institutions, are full substitutes. We analyze the impact of competition on policy outcomes under different assumptions regarding: the objectives of the...

According to the conventional wisdom, when an economy enters a recession and nominal prices adjust slowly, the monetary authority should devalue the domestic currency to make the recession less severe. The reason is that a devaluation of the currency lowers the relative price of non-tradable...

We study how competition from privately supplied currency substitutes a¤ects monetary policy. We focus on regimes where monetary policy must be sequentially optimal. We obtain that the workings of competition between currency and currency substitutes depend critically on government objectives....

We study the interaction of competition and reputation as e¢- ciency enhancing mechanisms in environments where informational or lack of commitment constraints a¤ect the ability of …rms to compete for market shares. We …rst analyze a dynamic model of monopolistic competition with...

This paper shows that state contingent debt can be syntethically constructed using non-contingent debt of di¤erent maturities. A main policy implication of this principle is that the complete markets Ramsey allocation can be sustained with non-contingent debt only, by properly managing its...

The relationship between devaluation and default risk is a central issue in the discussion of the costs and bene…ts of dollarizing emerging economies. Correct measures of these two unobserved variables are essential for assessing the welfare implications of dollarization. This paper studies...

In this paper the authors explore the ability of simple monetary models with bounded rationality to account for the joint distribution of money and prices. They impose restrictions on the size of the mistakes agents can make in equilibrium and argue that countries with high inflation are likely...

This paper studies the short run correlation of inflation and money growth. We study whether a model of learning does better or worse than a model of rational expectations, and we focus our study on countries of high inflation. We take the money process as an exogenous variable, estimated from...

This paper considers the design of an optimal unemployment insurance system. The problem is modeled as a repeated principal-agent problem involving a risk-averse agent--the unemployed worker--and a risk-neutral principal, which cannot montor the agent's search effort. The optimal long-term...

Introducing bounded rationality into a standard consumption based asset pricing model with a representative agent and time separable preferences strongly improves empirical performance. Learning causes momentum and mean reversion of returns and thereby excess volatility, persistence of...