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The effects of open-market operations and long- versus short-bond financing on risk in financial markets in a stochastically growing economy are studied. An increase in short bonds, resulting from exchanging long bonds, increases the riskiness of long bonds and raises their real rate of return. An open-market purchase of either long or short bonds raises the price of long bonds and lowers their risk and real return. However, debt policy adjustments that affect the real return to long bonds do not affect real investment or growth, so that overall the welfare consequences of debt policy are neutral. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

The authors examine the effects of free trade on a small open economy within a dynamic generalized cash-in-advance model. They provide a complete characterization for the possibility of harmful trade and suggest alternative economic policies that can convert the loss associated with free trade into a gain. They authors also find, contrary to standard results, that there exists an optimal tariff for a small open economy, and they use calibration methods to assess its value.

Recent evidence shows that there is an increasing use of non-tariff barriers to trade (NTBs), and especially of quantitative restrictions, such as import quotas, in the world economy to protect import-competing industries (see Table I).1 International trade theory, however, has traditionally focused on the welfare effects of tariffs as well as on the equivalence between tariffs and quotas, with little attention paid to the welfare implications of quotas. The latter have basically been restricted within the traditional Heckscher-Ohlin trade model, where, for the case of a small open economy, import quotas always reduce welfare. A few recent studies have attempted to fill in this gap in the literature. For instance, Young [19] compares optimal tariffs and quotas for a large country in a stochastic environment. Neary [14], on the other hand, investigates the welfare implications of tariffs, quotas and voluntary export restraints under different assumptions on capital mobility. Finally, Chao, Hwang and Yu [3; 4] examine the welfare effects of import quotas under variable returns to scale. Although the existing literature has generated important policy implications, most of the analysis has been conducted within a barter-exchange framework. It is well known, however, that the introduction of money can alter results obtained within a non-monetary environment.2 Accordingly, this paper attempts to re-examine the welfare effects of import quotas for a small monetary economy. We develop a two-sector trade model in which money enters the economy

This paper describes a dynamic general equilibrium asset-pricing model of a competitive monetary economy with a storable good and a cash-in-advance constraint where output, inside money, and inventories are endogenously determined. Inventories allow firms to react to high (low) productivity states by increasing (decreasing) production in good (bad) times. In response to a temporary change in the productivity of labor: inside money and output are positively and serially correlated, with inside money changing before output; output fluctuates more than sales, and prices fluctuate less in a flexible price model with no storage.

A two-region monetary economy is modeled as a five-equation system. Exogenous events in either region (changes in union wages, labor productivity, and banking policy) or at the national level (money supply changes) cause changes in price levels, wages, employment, and money stocks in both regions. The model structure permits explicit examination of transmission processes. 8 references, 1 figure, 18 tables.

This paper presents a formal general-equilibrium model of a monetary economy in which agents' decision rules are derived from the underlying preferences, technology, endowments, and information. Firms face kinked demand curves for the reason given by J. Stiglitz (1979)-customers know the price at their current firm but not at other firms. The results are compatible with extreme Keynesian macroeconomic predictions, as presented by G. Woglom (1982). There is no automatic tendency to full employment, and a change in the money supply may cause a permanent change in real output with no change in prices.

This survey paper argues that Walrasian markets and monetary exchan ge are alternative, not complementary, arrangements for coordinating economic activity; that if one realizes this, many informational anomalies and price rigidities that appear "irrational" in a Walrasia n context can be understood as the outcome of maximizing behavior in a monetary economy; and that the precautionary approach to modelin g the demand for money takes on a particular importance in this way of looking at things. Empirical evidence on the demand for money is cite d in support of this point of view, which tends to reinstate the quantity of money as an important economic variable, in contrast to the New Classical vision of the economy whi ch downgrades money's importance.

Individuals in a monetary economy face,both economy-wide and individualspecific risks. Friedman's (1969) assertion that the price level should fall at the rate of time preference must be modified when such risks are present. Bewley's (1983) conjecture that the modified deflation should proceed at a rate greater than the rate of time preference is demonstrated to be true in special cases but false in general. Moreover, the indeterminacy of equilibrium Bewley found is eliminated by the inclusion of a transactions demand for money.

A model of a pure exchange economy is investigated without the usual assumption of convex preference sets for the participating traders. The concept of core, taken from the theory of games, is applied to show that if there are sufficiently many participants, the economy as a whole will possess a solution that is sociologically stable--i.e., that cannot profitably be upset by any coalition of traders.

The neo-classical one-sector growth model has become a standard piece of equipment in the economic theorist's tool kit. Nevertheless, most of the available expositions of it are needlessly complicated and mathematical, and tend to obscure the simplicity of the central analytical propositions. This article presents a geometrical exposition of the model for the simplest possible case.2 It then goes on to indicate how various relaxations of the assumptions of this case can be accommodated, how the model can be used to illustrate various theories of the nature of the problem of economic development, and how it can be extended to take account of certain problems of growth in a monetary economy.