On Cash in Advance Constraints for Open Economies

The implications of different cash in advance (CIA) constraints for open economies are worked out. If CIA constraints are only for consumption expenditures, changes in the rate of growth of money will have no steady state effects. If all transactions, even those involving bonds, are subject to CIA constraints, an increase in the rate of growth of money will reduce savings and steady state consumption, and have no steady state effects on capital. If investment is not subject to CIA constraints, an increase in the rate of growth of money will increase steady state capital.Cash in Advance, Open Economies, Exchange Rates

Risk Sharing in a Federation with Population Mobility and Long Horizons

This paper considers risk sharing among individuals within and across regions in a federation with population mobility and infinite horizons. It is shown that the regional authorities will not fully exploit gains from inter-regional risk sharing when population mobility is imperfect. However, in the Nash equilibrium there is complete risk sharing among the individuals within each region, which corresponds to the policies of the central authority. Regional authorities who care about their reputation may be able to commit to an efficient allocation. It is possible that improvements in the degree of mobility will make such commitments less likely.Risk Sharing, Federation, Population Mobility, Efficiency

The Employment, Investment and Current Account Effects of Exchange Rate Policies in a Cash-in-Advance Economy

The effects of exchange rate policies are examined for a small open economy in an infinite horizon model with investment, labor/leisure choice, and cash-in-advance for consumption. An increase in the rate of depreciation of the domestic currency reduces consumption and labor supply, as the higher inflation increases the price of consumption relative to leisure. The fall in labor reduces the marginal productivity of capital, and a fall in investment. The country runs a current account surplus, despite the fall in output. The dynamics of the model for permanent, temporary and anticipated policy changes are fully worked out.Employment, Investment, Current Account, Cash-in-Advance

A Note on Endogenous Time Preference and Monetary Non-Superneutrality

We suggest a simple variant of Uzawa preferences which has the same predictions as his formulation, but is less prone to criticism. We assume that the rate of time preference is an increasing function of the total value of current financial assets. It is shown that an increase in the rate of money growth will initially reduce the real value of financial assets, reducing the rate of time preference, increasing savings and the steady state capital stock. This provides a restatement of the Mundell-Tobin effect in an optimizing framework.Monetary Non-Superneutrality, Time Preference, Financial Assets

Monetary Policy in a Cash-in-Advance Economy Employment, Capital Accumulation and the Term Structure of Interest Rates

This paper studies the effects of monetary policies on employment, capital accumulation, consumption, and the term structure of interestrates in a cash-in-advance economy, where money is required for consumption expenditures. Monetary policy involves targeting the inflation rate or the nominal interest rate. The detail dynamics of the model are fully worked out As no numerical analysis is involved, we are able to identify very clearly the different channels through which monetary policy will impinge on the important macroeconomic variables.Employment, Capital Accumulation, Term Structure, Cash-in-Advance